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BD Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $0.15 to $0.14 in next 10 days. The
BD Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $0.15 to $0.14 in next 10 days. The following interbank lending and borrowing rates exist: Deposit Rate Borrowing Rate U.S. dollar 8.0% 8.3% Mexican peso 8.5% 8.7% Assume that BD Bank has a borrowing capacity of either $10 million or 70 million pesos in the interbank market, depending on which currency it wants to borrow. How could BD Bank attempt to capitalize on its expectations? Estimate the profits that could be generated from this strategy. Assume 360 days in a year
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