Exchange rate for the euro to depreciate from spot rate

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Reference no: EM131990878

The Green Bank expects the exchange rate for the euro to depreciate from the spot rate of $0.15 to $0.14 in 10 days. Green Bank is able to borrow $10 million or 70 million euros. The short term interest rates (annualized) in the interbank market are as follows: CURRENCY LENDING RATE BORROWING RATE U.S Dollars 8% 8.3% Euro 8.5% 8.7% (a)How will the Green Bank attempt to capitalize on this expected change in exchange rate to make a speculative profit? Estimate the profit (if any) that could be generated from this strategy. (b)Assuming the expectation is that the euro will appreciate from $0.15 to $0.17 in 30 days. What change in strategy would be required for the Bank to earn a speculative profit? Determine the profit that could be earned.

Reference no: EM131990878

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