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Barclays Bank believes the Australian dollar (AU$) will appreciate over the next 9 days from $.70 to $.73. The following annual interest rates apply: Barclays
Barclays Bank believes the Australian dollar (AU\$) will appreciate over the next 9 days from $.70 to $.73. The following annual interest rates apply: Barclays Bank has the capacity to borrow either AU\$10 million or $7 million. If Barclays Bank's forecast is correct, how shall Barclays Bank implement its speculating trading activities and what will its dollar profit be from speculation over the nine-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)? (30/360 convention used for the interest calculation, i.e., assuming 360 days a year) Barclays Bank shall borrow $7 million at the annual rate of 7.20% for 9 days, convert $7 million to AU$ at the rate of $0.70/AU$, and invest the AU\$ converted at the annual rate of 6.80% for 9 days. Doing so, Barclays Bank will realize the profit of $299,810.00. Barclays Bank shall borrow AU $10 million at the annual rate of 7.28% for 9 days, convert AU\$10 million to $ at the rate of $0.70/A$, and invest the $ converted at the annual rate of 6.73% for 9 days. Doing so, Barclays Bank will realize the profit of $299,542.25. Barclays Bank shall borrow AU $10 million at the annual rate of 7.28% for 9 days, convert AU $10 million to $ at the rate of $0.70/AU$, and invest the $ converted at the annual rate of 6.73% for 9 days. Doing so, Barclays Bank will realize the profit of $309,178.25. Barclays Bank shall borrow $7 million at the annual rate of 7.20% for 9 days, convert \$7 million to AU\$ at the rate of \$0.70/AU\$, and invest the AU\$ converted at the annual rate of 6.80% for 9 days. Doing so, Barclays Bank will realize the profit of $308,837.00.00
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