(1) (a)Distinguish between political and foreign exchange risks as they relate to international financial transactions. Provide...

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(1) (a)Distinguish between "political" and "foreign exchange" risks as they relate to international financial transactions. Provide an example of each. (b)Assume that a Bank in Idaho [call it Golden State Bank] expects the Singapore dollar to depreciate against the U.S dollar from $0.42 to $0.40 in 30 days. The following interbank lending and borrowing rates (annualized) exist. CURRENCY U.S $ Singapore $ LENDING RATE 7.0 22.0 BORROWING RATE 7.2 24.0 Golden State Bank can borrow $1million or its Singapore dollar equivalent in the interbank market to capitalize on its expectation. How does it go about doing this in order to make a speculative profit? Determine the outcome (profit/loss) of the strategy you propose. (c)How will the strategy and the outcome change (if any) if the bank expects the Singapore dollar to appreciate from $0.42 to $0.44? (1) (a)Distinguish between "political" and "foreign exchange" risks as they relate to international financial transactions. Provide an example of each. (b)Assume that a Bank in Idaho [call it Golden State Bank] expects the Singapore dollar to depreciate against the U.S dollar from $0.42 to $0.40 in 30 days. The following interbank lending and borrowing rates (annualized) exist. CURRENCY U.S $ Singapore $ LENDING RATE 7.0 22.0 BORROWING RATE 7.2 24.0 Golden State Bank can borrow $1million or its Singapore dollar equivalent in the interbank market to capitalize on its expectation. How does it go about doing this in order to make a speculative profit? Determine the outcome (profit/loss) of the strategy you propose. (c)How will the strategy and the outcome change (if any) if the bank expects the Singapore dollar to appreciate from $0.42 to $0.44?

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a Political Risk Political risk refers to the risk associated with political actions or instability that may affect investments or financial transacti... View the full answer