1. Baylor Bank believes the New Zealand dollar (NZD) will appreciate over the next one year from USD0.50/NZD to USD0.80/NZD. The following annual interest rates apply:

Currency	Lending Rate	Borrowing Rate
U.S. Dollars(USD)	4.00%	5.00%
New Zealand dollar (NZD)	4.50%	5.50%

Baylor Bank has the capacity to borrow either NZD10 million or USD5 million. If Baylor Bank's forecast is correct, what will its USD profit be from speculation over the one period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?

Time = 0

Time = 1

Calculate Profit/Loss in USD