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5. a Trudo Co. is a U.S. firm that plans to capitalize on the difference in interest rates offer by two banks in Europe and
5. a Trudo Co. is a U.S. firm that plans to capitalize on the difference in interest rates offer by two banks in Europe and Britain over the month. Trudo plans to use $300,000 of its funds and borrow an additional $490,000 equivalent from either this European or British bank. Assumes the borrowing rates of the European bank equal to 0.75 percent while British bank offers 1.10 percent interest rates over one month respectively. Meanwhile, the deposit rates offered by the two banks are 5.5 percent for a European bank and 8 percent for a British bank. The euro's spot rate is $1.55, and the British pound's spot rate is $1.80. Suppose the euro depreciated by 3 percent over the month against the dollar, while the British pound depreciated by 0.5 percent over the month against the dollar. What is Trudo's expected profit or loss? (7 marks) 5. a Trudo Co. is a U.S. firm that plans to capitalize on the difference in interest rates offer by two banks in Europe and Britain over the month. Trudo plans to use $300,000 of its funds and borrow an additional $490,000 equivalent from either this European or British bank. Assumes the borrowing rates of the European bank equal to 0.75 percent while British bank offers 1.10 percent interest rates over one month respectively. Meanwhile, the deposit rates offered by the two banks are 5.5 percent for a European bank and 8 percent for a British bank. The euro's spot rate is $1.55, and the British pound's spot rate is $1.80. Suppose the euro depreciated by 3 percent over the month against the dollar, while the British pound depreciated by 0.5 percent over the month against the dollar. What is Trudo's expected profit or loss? (7 marks)
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