Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply:
$\begin{array}{ll}
\text { Currency } &\text {Lending Rate }&\text { Borrowing Rate} \
\text {Dollars} & \text { $ 7.10 \% $ }&\text { 7.50 \% }\
\text {New Zealand dollar (NZS) } &\text { $ 6.80 \% $ }&\text { 7.25 \%}\
\end{array}$

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)?

Question

Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply:
$\begin{array}{ll}
\text { Currency } &\text {Lending Rate }&\text { Borrowing Rate} \
\text {Dollars} &  \text { $ 7.10 \% $ }&\text { 7.50 \% }\
\text {New Zealand dollar (NZS) } &\text { $ 6.80 \% $ }&\text { 7.25 \%}\
\end{array}$

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)?

Quizplus · Accepted Answer

The Answer is E

Baylor Bank Believes the New Zealand Dollar Will Appreciate Over