Question
Morgan Stanley expects the Euro to appreciate from $1.25/ (todays spot rate) to $1.50/ sixty days from today. Morgan Stanley can borrow $1 million at
Morgan Stanley expects the Euro to appreciate from $1.25/ (todays spot rate) to $1.50/ sixty days from today. Morgan Stanley can borrow $1 million at an annualized interest rate of 6% or 1 million at an annualized interest rate of 4%. Morgan Stanley can invest (lend) dollars at an annualized interest rate of 5% or euros at an annualized interest rate of 3%. Determine the expected profit or loss (in dollars) if Morgan Stanley pursues a speculation strategy to capitalize on the expected appreciation of the euro. Assume 360 days in a year.
Round your final answer to the nearest dollar (whole number).
A. $200,000
B. $156,000
C. $196,000
D. $175,000
E. None of these answer choices are correct.
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