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Please help me with this problem Problem 3 (Speculation): Blue Demon Bank expects that the Mexican peso (MXN) will depreciate against the U.S. dollar (USD)
Please help me with this problem
Problem 3 (Speculation): Blue Demon Bank expects that the Mexican peso (MXN) will depreciate against the U.S. dollar (USD) from its Spot rate of USD 0.15 to USD 0.14 in 10 days. The following interbank lending and annual borrowing rates exists, Currency USD MXN Lending Rate 8.0% 8.5% Borrowing Rate 8.3% 8.7% Assume that Blue Demon Bank has a borrowing capacity of either USD 10,000,000 or MXN 70,000,000 in the Interbank market, depending on which currency it wants to borrow. a) 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. b) Assume all the preceding information with this exception: Blue Demon Bank expects the MXN to appreciate from its present Spot rate of USD 0.15 to USD 0.17 in 39 days. How could it attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategyStep by Step Solution
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