Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to
Question:
Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply: (show all steps for your solution)
Baylor Bank has the capacity to borrow either NZ$10 million or $5 million. If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?
1. Borrow $5 million.
2. Convert $5 million to NZ$?
3. Invest the NZ$ at an annualized rate of 6.80% over five days?
4. Convert the NZ$ back to dollars?
5. Repay the dollars borrowed. The repayment amount is?
6. After repaying the loan, the remaining dollar profit is?
Financial Markets And Institutions
ISBN: 978-0132136839
7th Edition
Authors: Frederic S. Mishkin, Stanley G. Eakins