Two of these factors affect equilibrium exchange rate

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Reference no: EM131990882

Suppose the MIDLAND bank expects the New Zealand dollar (NZ$) will depreciate against the US$ from its spot rate of $0.43 to $0.42 in 60 days. The following interbank lending and borrowing rates exist: Currency Lending Rate Borrowing Rate US$ 7% 7.2% NZ$ 22.0% 24% Midland Bank has access to NZ$ 10million or US$ 4.3million.How can the bank attempt to make a speculative profit based on expected exchange rate movement without risking depositors money? Estimate the profit (or losses) that could be earned from this strategy. (b) Identify the factors which determine changes in equilibrium exchange rate. Discuss how any two of these factors affect equilibrium exchange rate.

Reference no: EM131990882

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