RISK MANAGEMENT AND DERIVATIVES
The treasurer of a large Canadian company has $ 30 million Canadian dollars to invest During three months. The effective monthly interest rate in Canada and Great Britain is 0.31% and 0.34%, respectively.
The current exchange rate of £ 0.573 / $ 1 and the forward price (F0) of £ / $ for one Maturity of 3 months is £ 0.575 / $ 1.
A) In which country should the treasurer invest the company's funds?
(Further information: Ignore Transaction costs)
B) Is there an opportunity for arbitration? If so, why and how can we benefit? If not, Why?