Bank of America expects the Thai baht to depreciate against the dollar from its spot rate of $.032 to $.028 in 30 days.

The following interbank lending and borrowing rates exist:

Lending Rate Borrowing Rate

U.S. dollar 6.0% 6.8%

Thai baht 8.2% 9.6%

Bank of America is able to borrow on a short-term basis either $10 million or 300 million baht in the interbank market, depending on which currency it wants to borrow.

a.Suppose Bank of America does not use its own funds but decides to borrow in the interbank market. Estimate the profits that can be generated by currency speculation using borrowed funds. Show every step of your calculation.

b. Assume all the preceding information with this exception: Bank of America expects the baht to appreciate from its present spot rate of $.032 to $.039 in 30 days. How could it attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated by currency speculation using borrowed funds. Show every step of your calculation.