Step by step calculation for both questions. ..

2. STEP: 1 of 4 Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to appreciate from its current level of 0.5 to 0.53 in 30 days. Denver Financial seeks to capitalize on this potential opportunity. Suppose that Denver Financial begins by borrowing $40,000,000 and converting it to New Zealand dollars (NZ$). The following table shows the short-term Interest rates (annualized) in the interbank market. Lending Rate Borrowing rate Currency (Adjusted for 30-day period) (Adjusted for 30-day period) U.S. Dollars 6.62% 7.10% New Zealand Dollars (NZ$) 6:38% 6.86% After exchanging $40,000,000 for New Zealand dollars, Denver Financial will have NZ (New Zealand dollars).B. Carry trade 1. 2. STEP: 1 Of 5 Suppose that California Co., a U.S. based MNC, seeks to capitalize a difference in interest rates between euros and British pounds via the use of a carry trade. In particular, after 1 month, funds invested in euros will yield a 0.50% percent return, while funds invested in pounds will yield a return of 2.00% percent. Currently the spot rate of the British pound is $1.00 while the spot rate of the euro is $0.80. In other words, the pound is worth 1.25 euros. California Co. expects these spot rates to remain constant over the next month. If California Co. takes $200,000 of its own funds and converts them to pounds it would have pounds, If California Co. borrows 500,000 euros and converts them to pounds, it will have pounds. Grada Buyp 1 TOTAL SCORE: D/