13. The Treasury desk of a global bank incorporated in UK wants to invest GBP 200 million on 1st January, 2019 for a period of 6 months and has the…

13. The Treasury desk of a global bank incorporated in UK wants to invest GBP 200 million on 1st January, 2019 for a period of 6 months and has the following options: (1) The Equity Trading desk in Japan wants to invest the entire GBP 200 million in high dividend yielding Japanese securities that would earn a dividend income of JPY 1,182 million. The dividends are declared and paid on 29th June. Post dividend, the securities are expected to quote at a 2% discount. The desk also plans to earn JPY 10 million on a stock borrow lending activity because of this investment. The securities are to be sold on June 29 with a T+1 settlement and the amount remitted back to the Treasury in London. (2) The Fixed Income desk of US proposed to invest the amount in 6 month G-Secs that provides a return of 5% p.a. The exchange rates are as follows: Currency Pair 1 Jan 2019 (Spot) 30 Jun 2019 (Forward) GBP - JPY 148.0002 150.0000 GBP - USD 1.28000 1.30331 As a treasurer, advise the bank on the best investment option. What would be your decision from a risk perspective? You may ignore taxation. Note: Calculate all figures in millions and round off them upto 4 decimal points.