Subject: International Financial Management

(a) The Mexican Peso (MXN) is expected to decline against the dollar in the next 10 days, according to BBVA Bancomer, from its current spot rate of USDO. 1500 to USDO. 1400. There are the following rates for interbank lending and borrowing: Currency US Dollar (USD) Mexican Peso (MXN) Lending Rate 8.00% Borrowing Rate 8.30% 8.50% 8.70% Assume BBVA Bancomer has a borrowing capacity of USD10 million or MXN70 million in the interbank market, depending on which currency it wishes to borrow. Determine how BBVA Bancomer might capitalise on its projections without utilising deposited money and earn potential profit from this approach. (11 marks)