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Effective Yield - Fort Collins

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Fort Collins, Inc., has $1 million in cash available for 30 days. It can earn 1 percent on a 30-day investment in the United States. Alternatively, if it converts the dollars to Mexican pesos, it can earn 1.5 percent on a Mexican deposit. The spot rate of the Mexican peso is $.12. The spot rate 30 days from now is expected to be $.10.

Should Fort Collins invest its cash in the United States or in Mexico? Substantiate your answer.

Solution Summary

The solution determines Should Fort Collins invest its cash in the United States or in Mexico?

$2.19