Foreign Auto Purchase

havprj
timer Asked: May 15th, 2015

Question Description

While you were visiting London, you purchased a Jaguar for £35,000, payable in three months. You have enough cash at your bank in New York City, which pays 0.35 percent interest per month,

compounding monthly, to pay for the car. Currently, the spot exchange rate is $1.45/£ and the three-month

forward exchange rate is $1.40/£. In London, the money market interest rate is 2.0 percent for a three-

month investment. There are two ways to pay for your Jaguar

a. Keep the funds at your bank in the United States and buy £35,000 forward.

b. Buy a certain pound amount spot today and invest the amount in the U.K. for three months so that the

maturity value becomes equal to £35,000.

1.Analyze the alternatives presented and make a recommendation on purchasing the Jaguar. Be sure to provide

support for your recommendation

2. Why do you prefer the stated alternative? What are the advantages of the alternative that you have selected?


User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

This question has not been answered.

Create a free account to get help with this and any other question!

Related Tags

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors