(Show all the steps) 29. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO,
ID: 2632026 • Letter: #
Question
(Show all the steps)
29. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER (S, EUROS, ETC). FAILURE TO DO SO WILL RESULT IN A DEDUCTION OF POINTS. 6 POINTS Bank of Oklahoma has the capacity to borrow 20 million in Canadian dollars (C$) or 10 million in U.S. dollars ($). The bank believes that the CS will appreciate over the next 10 days from $.35 to $. 37. U.S. $ Lending Rate: 7.50% Borrowing Rate: 8.00% CS Lending Rate: 7.20% Borrowing Rate: 7.60% Assuming the forecast is correct, what will be its IL& S profit from currency speculation over the 10 day period?Explanation / Answer
Movement 1 Movement 2 borrow in canadian dollar and lend at us dollar borrow in US dollar and lend at Canadian dollar money received in C$ 20000000 money received in US $ 10000000 convert at existing spot to us $ convert at existing spot to us $ 1 C$ 0.35 $ 1 C$ 0.35 $ 20000000 7000000 28571428.57 10000000 Lend 7 million us $ @ 7.50% Lend Canadian $ @ 7.20% Amount received after 10 days Amount received after 10 days 7 + 7*0.075*10/365 7014383.562 285714428.57 + 285714428.57*0.072*10/365 28627788.65 convert to canadian $ and repay the amount convert to US $ and repay the amount 1 C$ 0.37 $ 1 C$ 0.37 $ 18957793.410 7014383.562 28627788.650 10592281.800 Amount borrowed in Canadian $ 20000000.00 Amount borrowed in US $ 10000000.00 Add : interest @ 7.6% 41643.84 Add : interest @ 8% 21917.81 Less : amount received -18957793.41 Less : amount received -10592281.80 Net loss 1083850.43 Net profit -570363.99 Profit from currency = 570364 US $
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.