Suppose that the treasurer of XYZ has an extra cash reserve of £1,000 to invest for a year

Finance Dec 27, 2020

Suppose that the treasurer of XYZ has an extra cash reserve of £1,000 to invest for a year. The annual interest rate is 3% per annum in the United Kingdom and 4% per annum in Japan. The treasurer of XYZ does not wish to bear any exchange risk and she transacts at the spot rate of £1 = ¥133.25 and forward rate of £1 = ¥134.15. Where should she invest to maximize the return and how many pounds will she get, round to 2 decimal places?

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