Keep the funds at your bank in the United States and buy a forward contract to pay for the car. Buy a certain currency amount spot today and invest the amount in the foreign bank for three months so that the maturity value becomes equal to the price of the car.Analyze the two alternatives presented and make a recommendation on purchasing the car. How could this purchase opportunity be considered arbitrage? What are the advantages of the alternative that you have selected?

Foreign auto purchase | Business & Finance homework help

There are two options for buying the car: either purchasing a forward contract or investing in a foreign banking. The forward contract involves a payment agreement to your bank for a specific amount at a future date. While investing in foreign banks requires you to deposit funds for three month so the maturity value of the vehicle is equal. A forward contract is a good option, as it offers many benefits.

First, the strategy removes all exchange rate risk because buyers can lock in their prices when they enter into these agreements. Moreover, they can access their funds immediately after completion because they have already secured them beforehand. This provides greater ease over time. Buyers can also take advantage of arbitrage opportunities that could lead to higher profits by using these contracts.

Forward contracts are a good option for large-scale purchases like cars. They offer buyers certainty and flexibility in pricing, which gives them peace of mind.

This is a snippet preview, get a complete custom solution
Access a Complete Custom-Written Paper from Our Writers, Now!!