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10. A U.S. firm would like to speculate on interest rates where it plans to borrow a currency at a lower interest rate and invest
10. A U.S. firm would like to speculate on interest rates where it plans to borrow a currency at a lower interest rate and invest in a currency that pays a higher interest rate. The company decides to borrow 400,000 euros costs 1.7% for one month and invest in British Pounds paying 3.5% interest for one month as well. Assume that the British pound's spot rate is presently $1.74, while the euro is presently worth $1.10. Assume also that the euro depreciates by 2.5% over the month against both the pound and the US dollar while the British pound's spot rate remains the same. What do we call this strategy and what is the expected profit from it
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