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?

Two options for buying the car are to buy a forward contract or invest in a bank abroad. The forward contract involves entering an agreement with the bank that you will pay the agreed amount at a future date. Investing in a foreign bank requires depositing money for three months to ensure the maturity is the same as the cost of the vehicle. It is recommended that you purchase a contract after careful consideration. This method offers several benefits.

Firstly, the strategy removes all exchange rate risks since the buyer can fix their price by entering into agreements of this type. Having already locked in their price, the buyer will be able to access it instantly after completion. This is a great convenience. By utilizing these contracts, buyers can also realize arbitrage profits by taking advantage.

The flexibility of forward contracts and their ability to offer certainty about pricing are two reasons why they can be beneficial when purchasing large items such as automobiles.