Question
Kurnick Co. expects that the pound will depreciate from $1.72 to $1.70 in one year. It has no money to invest, but it could borrow
Kurnick Co. expects that the pound will depreciate from $1.72 to $1.70 in one year. It has no money to invest, but it could borrow money to invest. A bank allows it to borrow either 2 million dollars or 2 million pounds for one year. It can borrow dollars at 6.0 percent or British pounds at 5.0 percent for one year. It can invest in a risk-free dollar deposit at 4.5 percent for one year or a risk-free British deposit at 3.5 percent for one year. Determine the expected profit or loss (in dollars) if Kurnick Co. pursues a strategy to capitalize on the expected depreciation of the pound. Do not round intermediate calculations. Round your answer to the nearest dollar. Enter your answer as a positive value.
Kurnick Co. borrows pounds and invest in a risk-free dollars deposit to capitalize on the expected depreciation of the pound.
The expected profit is $ _________.
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