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Present short-term interest rates in the interbank market

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Reference no: EM132527534

Chicago Bank expects the exchange rate of the New Zealand dollar (NZD) to depreciate from its present level of USD 0.50 to USD 0.45 in 30 days. Suppose the Chicago bank borrows NZD 40,000,000. Show the transactions that the Chicago Bank can use to make a speculative profit and the amount of speculative profit.

Present short-term interest rates (annualized) in the interbank market are as follows:

Currency Lending Rate Borrowing Rate

USD 6.72% 7.20%

NZD 6.48% 6.96%

Reference no: EM132527534

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