You must make a $100,000 domestic payment in Los Angeles in 90 days. You have $100,000 now and decide to invest it for 90 days either in the USA or in the UK. Assume that the following quotations and expectations exist:

(a) Where should you invest your $100,000 to maximize your yield with no risk?

(b) Given the US interest rate, the UK interest rate, and the spot rate, what would be an equilibrium forward exchange quotation? This equilibrium situation should provide you with no advantage or disadvantage associated with investing in one country or the other.

(c) Given the spot rate, the forward rate, and the US interest rate, what is the equilibrium UK interest rate?

Answer rating: 100% (QA)

A To maximize the return on the 100000 for the domestic p... View the full answer