Question

Baylor Bank believes the New Zealand dollar will appreciated over the next 15 days from $.90 to $.93. The following annual interest rates apply:

Currency	Lending Rate	Borrowing Rate
Dollars	4.50%	6.50%
New Zealand dollar (NZ$)	6.40%	8.00%

Baylor Bank has the capacity to borrow either NZ$10 million or $9 million. If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the 15 days period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?

Answer 1

Solution