5. Exchange Rates

a) Suppose you want to convert your 1,000 GBP (British pound) to Australian dollars (AUD). Gate City Bank and US Bank post the following currency quotes. What bank you should choose to exchange your British pounds to Australian dollars and how much AUD will you get as a result of this transaction?

Bank	Currency	Bid	Ask
Gate City	GBP/USD	1.60	1.70
	AUD/USD	1.05	1.15
US Bank	GBP/AUD	1.30	1.40

b) Fargo Bank expects that Russian Ruble will depreciate against the dollar from 0.25$ to 0.20$ in 90 days. The following interbank lending and borrowing rates exist:

Currency	Lending Rate	Borrowing Rate
USD	6.0%	6.5%
Russian Ruble	13%	15%

Assume that Fargo Bank has a borrowing capacity of either $5,000,000 or 20 million rubles. How could Fargo Bank attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy.

c) How would your answer to b) change if Fargo Bank expected Russian ruble to appreciate from 0.25$ to 0.28$ in 90 days? Estimate the profits that could be generated from the revised strategy.