17. Baylor Bank believes the New Zealand dollar (N.Z $) will change in its value

Question

17. Baylor Bank believes the New Zealand dollar (N.Z $) will change in its value over the next 5 days from $0.50 to $0.48. The following annual interest rates apply:
Lending Rate for U.S.$ : 7.10%
Borrowing Rate for U.S.$ : 7.50%
Lending Rate for N.Z $ : 6.80%
Borrowing Rate for N.Z $ : 7.25%

Baylor Bank has the capacity to borrow either $5 million or equivalent $ amount at the current spot rate. Baylor Bank desires to make a speculative gain based on its forecast and the current interest rates.

In order to make speculative gain, the bank borrows in one currency and lends in other currency? what will its dollar profit be from speculation over the five-day period? Use 360 days in a year.
Answer
$ 208,044
$208,321
$200,097
$221,325



In order to make speculative gain, the bank borrows in one currency and lends in other currency? What is the total interest the bank would receive in the currency in which it lends? Use 360 days in a year.
Answer
N.Z $ 9,444
$ 4,733
N.Z. $ 9838
$ 4,931

Explanation / Answer

In order to make speculative gain, the bank borrows in one currency and lends in other currency? What is the total interest the bank would receive in the currency in which it lends? Use 360 days in a year. Answer: N.Z $ 9,444 10mx6.8x5/(360x100)= 9444

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