Question: Case Study IV: Speculation Welles Fargo Bank, based in Los Angeles, California, has the ability to borrow 30 million U.S. dollars (USD) at 10% annualized.

Case Study IV: Speculation Welles Fargo Bank, based in Los Angeles, California, has the ability to borrow 30 million U.S. dollars (USD) at 10% annualized. It can then invest in either the euro (EUR), the Australian dollar (AUD), or the Canadian dollar (CAD). For simplicity, suppose that the lending rate of all of the euro, the Australian dollar, and the Canadian dollar is 9% annualized over a 10-day time period. The spot rates and the expected rates of the euro, Australian dollar and the Canadian dollar are given in the table below. Spot Rate Expected Spot Rate (Nov. 21st , 2018) After 10 days USD/EUR 1.1394 1.1819 USD/AUD 0.7239 0.7421 USD/CAD 0.7556 0.7898 Question: Based on the information given above, determine in which currency should Welles Fargo Bank invest; EUR, AUD or CAD? Justify your answer. Calculate the potential profit in U.S. dollars. Calculate the effective rate of return on investment

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