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Eliminate the chance for kelly to make any money

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Kelly can borrow 1 million euros or 1,250,000 pounds.  The rate at which she can borrow and invest is equal to 4.5% in England and 6.2% in Germany.  The spot rate is 1.25 euros per pound and the forward rate in one year is equal to 1.21 euros per pound.  

  • Do you have to do any calculations in order to determine whether Kelly would be better off borrowing in England and investing in Germany or whether she would be better off borrowing in Germany and investing in England?  Explain.
  • How can Kelly make money?  Show and explain all the steps of your reasoning.
  • What interest rate in Germany will eliminate the chance for Kelly to make any money?  Explain and show the steps of your reasoning.

Reference no: EM132398346

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