Problem:
The treasurer of a major U.S. firm has $12 million to invest for 3 months. The interest rate in the U.S. is 0.42 percent per month. The interest rate in Great Britain is 0.52 percent per month. The spot exchange rate is 0.70, and the three-month forward rate is 0.71. Ignoring transaction costs, in which country would the treasurer want to invest the company's funds? Why?
a) U.S.; earn an additional $47,211.16.
b) U.S.; earn an additional $135,325.24
c) U.K.; earn an additional $9,418.02
d) U.K.; earn an additional $38,522.47
e) U.K.; earn an additional $121,510.67.