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Capital One Bank expects that the Singapore dollar will depreciate against the U.S dollar from its spot rate of $.43 to $.42 in 60 days.
Capital One Bank expects that the Singapore dollar will depreciate against the U.S dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist:
Lending Rate Borrowing Rate
U.S dollar 7.0% 7.2%
Singapore dollar 22.0% 24.0%
Capital one Bank considers borrowing $10 million Singapore dollars in the Interbank market and investing the funds in dollars for 60 days. Estimate the profits (or losses) that could be earned from this strategy. Should Capital One Bank pursue this strategy?
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