Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply:
|
Currency
|
Lending Rate
|
Borrowing Rate
|
|
Dollars
|
7.10%
|
7.50%
|
|
New Zealand dollar (NZ$)
|
6.80%
|
7.25%
|
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)?
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