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Please provide an explanation. A currency speculator expects the spot rate of British Pounds (GBP) to change from $2.00 to $2.20 in 6-months. Assume the
Please provide an explanation.
A currency speculator expects the spot rate of British Pounds (GBP) to change from $2.00 to $2.20 in 6-months. Assume the speculator has access to credit lines of USD 20,000,000 in the US and GBP 10,000,000 in UK. The annual borrowing and lending rates are 6 percent in US and 4 percent in UK. If his forecast turns out be to true, at the end of the 6-month period, the speculator's expected profit will be: GBP 836,364 A currency speculator expects the spot rate of Euros to change from $1.20 to $0.80 in one year. Assume the speculator has access to credit lines of USD 12,000,000 in the US and EUR 10,000,000 in Europe. The annual borrowing and lending rates are 6 percent in US and 8 percent in Europe. If his forecast turns out be to true, at the end of the one-year period, the speculator's expected profit will be: EUR 5,100,000Step by Step Solution
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