1.You have gathered the following information: __________________________________________________ Canada 1-year interest rate = 0.50% Mexico 1-year interest rate = 1.00% Canada spot rate = USD 0.75 per CAD Mexico spot rate = USD 0.05 per MXP __________________________________________________ Assume that you have forecasted the spot rates to remain unchanged over the next year, and that you can borrow $750,000 or 1 million Canadian dollars or 15 million Mexican pesos. Demonstrate the process of carry trade to determine how much speculative profit you will make. Provide the amount of profit in U.S. dollars and in percent.

2.Trader Joe Bank believes the Australian dollar will appreciate over the next five days from U.S.$0.68 to U.S.$0.70. The following annual interest rates apply: Currency Lending Rate Borrowing Rate U.S. dollar 7.1% 7.50% Australian dollar (A$) 6.8% 7.25% Trader Joe Bank has the capacity to borrow either A$10 million or US$5 million. Estimate Trader Joe's expected U.S. dollar profit from speculation over the five-day period (assume existing consumer deposits are not used to capitalize on its expectations). Round your answer to the nearest U.S. dollar. What happens to their profitability if their forecast is incorrect and instead the Australian dollar only appreciates to U.S.$0.685?