Part a Three Shocks, Inc. has $8 million in cash available for 30 days. It...
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Part a Three Shocks, Inc. has $8 million in cash available for 30 days. It can earn 3% on a 30day investment in the U.S. Alternatively, if it converts the dollars to Indian Rupee, it can earn 4% on an Indian deposit. The spot rate of the Indian rupee is $.013. The spot rate 30 days from now is expected to be $.0124. Should Three Shocks invest its cash in the U.S. or in India? Substantiate your answer. (7 marks)
Part b Excess Yard Inc. has $13 million in excess cash that it has invested in Antigua at an annual interest rate of 25 percent. The U.S. interest rate is 4 percent. By how much would the East Caribbean dollar have to depreciate to cause such a strategy to backfire? (3 marks)
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