Please Help me out with this macroeconomics question?

Question

Suppose the CFO of an American corporation with surplus cash flow has $1 million to invest. Suppose that the interest rate on 1 year CD deposits in US banks is 2 %, while the rate on 1 year CD deposits (denominated in pounds sterling) in British banks is currently 4.75 %. Suppose further that the CFO expects that the exchange rate will change from (.5) British pounds per $ to (.525) British pounds per $ during the coming year. Should the CFO invest in CD's denominated in dollars or in pounds?

Answer 1

A:

Exchange from $ to £

$1m * 0.5 = £ 0.5m

After one year with interest earned = 0.5m*1.0475= £ 523'750

Exchange back: £ 523'750/0.525 = $ 997'619.05

B:

Direct investment:

$1m after one year with interest earned = $1m * 1.02 = $1,02 million

So it is not profitable to change into £ and firm should invest directly (in this case), because of appreciation of dollars relatively to pounds (for 0.525/0.5= 1.05 = +5%), or because of depreciation of pounds relatively to dollars for (0.5/0.525)-1=0.9524 -1 = -0.04762= -4.76%. If firm will invest into pound-denominated assets then compamy will loose $22'380.95 + transfer tarifs.