Blue Demon Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $0.14 to $0.10 in 20 days. The following interbank lending and borrowing rates exist:

Currency	Lending Rate	Borrowing Rate
U.S. dollar	7.8%	8.1%
Mexican peso	8.2%	8.7%

Assume that Blue Demon Bank has a borrowing capacity of either $13 million or 80 million pesos in the interbank market, depending on which currency it wants to borrow. Assume 360 days in year for your calculations. Do not round intermediate calculations. Round your answers to the nearest dollar.

1. How could Blue Demon Bank attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy.

   Blue Demon Bank can capitalize on its expectations by borrowing pesos, converting it to dollars , lending the dollars and repaying the pesos loan.

   The expected profit is $ .

2. Assume all the preceding information with this exception: Blue Demon Bank expects the peso to appreciate from its present spot rate of $0.14 to $0.17 in 30 days. How could it attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy.

   Blue Demon Bank can capitalize on its expectations by borrowing dollars, converting it to pesos, lending the pesos, and repaying the dollar loan.

   The expected profit is $ .