A new MBA working at Hopeful Enterprises, has identified what looks like a good opportunity to take advantage of interest rate differentials for his firm.This hardworking new MBA sees that interest rates in Australia are currently 0.75% (for a 6-month period) while in Japan the rates are an incredible 0.15%.The current exchange rates are: $.00832/Yen and $0.77/Australian $ (A$) with the current cross rate = 92.27 Yen/A$.If our favorite MBA is knowing that he can borrow up to the equivalent of $5mm US, how would he take advantage of this differential?Assume that interest rates do not change over the 6-month period.

Beginning of Investment Period:

Australian interest rate = 0.75% (for 6 months)

Japanese interest rate = 0.15% (for 6 months)

Exchange rate: $.00832/Yen

Exchange rate: $0.77/Australian $ (AUD)

Cross rate:92.27 Yen/AUD

1.Where will the MBA borrow funds?

2.If he can borrow up to the equivalent of $5mm, how many units of this currency will he borrow?

3.What will be the total amount due to repay the loan in 6 months? (in the borrowed currency)

4.Where with the MBA invest?

5.When the borrowed funds are converted, how many units of the new currency will be invested?

6.At the end of the investment, what is the total value of the investment? (in the currency of the investment)

7.Amount the MBA needs to pay back the loan (I am looking for the amount in terms of the invested currency, which is the fund used to pay back the loan)

8.Assuming exchange rates do not change during this 6 month period, what is the potential profit for the MBA's firm (in terms of US dollars)?