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Economics Question; HELP! Part 1?

Suppose the current price of pounds sterling in the United Kingdom is $ 1.20 and 1 year forward price is $ 1. The U.S. interest rate is 5% and interest rates in the United Kingdom is 20%. You have $ 12,000 to invest. You have two options: you can put your money in the United States for a year or you can put your money in the United Kingdom, using the market's interest to avoid completely the risk of exchange rate. A. How like dollars at the end of the year if you put your money in the United States? B. How much $ you want at the end of the year if you put your money in the United Kingdom? Explain why. C. Now suppose you are British, which began with 10,000 lbs. How many books you have at the end of the year if you put your money in the U.S.? Explain why.

Assuming that you are Originally the U.S. futures exchange and is very reliable (ie the rate is the same as the exchange rate today) A: $ 12,000 → Bank (5%) 1 years → → 12000 +5% = $ 12,600 Interest Rate = 5%, no currency depreciation. Total interest rate Nominal = 1.05 = 5% B: $ 12,000 → change (point 1 $ = 1.2 €) → → → £ 10,000 Bank of the United Kingdom (10%) → → → 1 Year U.S. $ 10,000 10% = € 11,000 U.S. → → Change (forward £ 1 = $ 1) → Interest rates $ 11,000 = 10%, less depreciation currency of the United Kingdom (-16.7%) Total nominal interest rate = 1.10 * (1.00/1.20) ≈ 0.917 ≈ -8.3% C: £ 10,000 Change → (Item 1 $ = 1.2 €) → → → $ 12,000 U.S. Bank (5%) 1 years → → → → → $ 12,600 United Kingdom Exchange (£ 1 = $ 1) → £ 12,600 = interest rate of 5% more in U.S. currency recognition (20%) of interest Total votes = 1.05 * 1.20 = 1.26 = 26% PS reality for banking services, transfer fees, change margins and taxes must be considered too.

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