Effective Yield Fort Collins, Inc., has $1 million in cash available for 30 days. It can earn 1 percent on a 30-day investment in the United States. Alternatively, if it converts the dollars to Mexican pesos, it can earn 1.5 percent on a Mexican deposit. The spot rate of the Mexican peso is $0.12, and the spot rate 30 days from now is expected to be $0.10. Should Fort Collins invest its cash in the United States or in Mexico? Support your answer.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 21, Problem 8QA
Textbook Problem

Effective Yield Fort Collins, Inc., has $1 million in cash available for 30 days. It can earn 1 percent on a 30-day investment in the United States. Alternatively, if it converts the dollars to Mexican pesos, it can earn 1.5 percent on a Mexican deposit. The spot rate of the Mexican peso is $0.12, and the spot rate 30 days from now is expected to be $0.10. Should Fort Collins invest its cash in the United States or in Mexico? Support your answer.

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