Exchange rate to make speculative profit

Assignment Help Financial Management

Reference no: EM131990867

A New York City Bank expects the exchange rate for the euro to appreciate from the spot rate of $0.60 to $0.65 in 90 days. The Bank is able to borrow $15 million or 25 million euros. The short term interest rates (annualized) in the interbank market are as follows:

CURRENCY LENDING RATE BORROWING RATE

U.S Dollars 6.72% 7.2%

Euro 6.48% 6.96%

(a) How will this 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 depreciate from $0.60 to $0.55 in 90 days. What change in strategy would be required for the Bank to attempt to earn a speculative profit? Determine the profit (if any) that could be earned.

Reference no: EM131990867

Questions Cloud

What are the financial risks taken in your business : What are the financial risks taken in your business? Does your company encounter any political risk?

Advantages to utilizing diverse teams within an organization : What are some advantages to utilizing diverse teams within an organization? What are some potential difficulties that might need to be overcome in order.

Realignment process that will yield interest rate parity : Briefly discuss the realignment process that will yield interest rate parity.

The implementation of the training or conference : Examine the training objectives that led to the implementation of the training or conference you have chosen.

Exchange rate to make speculative profit : How will this bank attempt to capitalize on this expected change in exchange rate to make a speculative profit? Estimate the profit

What are organizations do to protect themselves from crisis : What are organizations doing to protect themselves from crisis that affects their critical technological resources? The response must be typed.

Best estimate of these bonds remaining life : What is the best estimate of these bonds' remaining life? What is their nominal yield to maturity?

Provide a review of each of tuckmans five stages of group : Provide a review of each of Tuckman's five stages of group formation and identify what stage(s) are evident in the case. Explain your answer.

Analyse management strategies and operational activities : PPMP20013 - Project Management for Operators of Large Assets - developing a tender request as the principal for a project in the mining

User Account

All Pages