Depending on which currency it wants to borrow

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Reference no: EM131965990

Choose Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $.16 to $.14 in 10 days. The following interbank lending and borrowing rates exist:

Lending Rate Borrowing Rate

U.S. dollar 7.0% 8.3%

Mexican peso 7.5% 8.7%

Assume that Choose Bank has a borrowing capacity of either $10 million or 70 million pesos in the interbank market, depending on which currency it wants to borrow.

How could Choose Bank attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy.

Reference no: EM131965990

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