MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD) from its spot rate of $.44 to $.41 in 90 days. The following interbank lending and borrowing rates exist: Annual borrowing rate Annual lending rate USD 7.20% 7.00% NZD 10.00% 9.00% MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 90 days. Estimate the profits (or losses) that could be earned from this strategy. Should MSN Bank pursue this strategy? Show necessary calculations and discuss (50 words excluding calculations).
MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD) from its spot rate of $.44 to $.41 in 90 days. The following interbank lending and borrowing rates exist: Annual borrowing rate Annual lending rate USD 7.20% 7.00% NZD 10.00% 9.00% MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 90 days. Estimate the profits (or losses) that could be earned from this strategy. Should MSN Bank pursue this strategy? Show necessary calculations and discuss (50 words excluding calculations).
Chapter4: Exchange Rate Determination
Section: Chapter Questions
Problem 20QA
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MSN Bank expects that the New Zealand dollar (NZD) will
against the U.S. dollar (USD) from its spot rate of $.44 to $.41 in 90 days. The following interbank lending and borrowing rates exist:
Annual borrowing rate | Annual lending rate | |
USD | 7.20% | 7.00% |
NZD | 10.00% | 9.00% |
MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 90 days. Estimate the
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