BUS450 Week 2 dq 2 Foreign Auto Purchase
1 st Posting Due by Day 3. Foreign Auto Purchase. Read the scenario present in Chapter 6 Problem #2 (at the end of the chapter): 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. Analyze the alternatives presented and make a recommendation on purchasing the Jaguar. Be sure to provide support for your recommendation – why do you prefer the stated alternative? What are the advantages of the alternative that you have selected? Respond to at least two of your classmates’ postings.
FOREIGN AUTO PURCHASE
Buying an auto outside the country could create a huge financial mess if not approached appropriately or become worth it if purchased appropriately. In my own opinion, I would keep the funds at the bank and buy upwards. This is because the interest rate that the money will earn at the point of purchase all through the three months…