Suppose that Denver Financial Co$.$ expects the exchange rate of the New Zealand dollar $($NZ$$)$ to appreciate from its current level of $0\mathrm{.}5$ to $0\mathrm{.}53$ in $30$ days. Denver Financial seeks to capitalize on this potential opportunity.Suppose that Denver Financial begirls by borrowing $$20,000,000$ and converting it to New Zealand dollars $($NZ$$).$The following table shows the short$-$term interest rates $($annualized$)$ in the interbank market.CurrencyLending Rate$($Adjusted for $30-$day period$)$Borrowing rate$($Adjusted for $30-$day period$)$U$.$S$.$ Dollars$6\mathrm{.}82\%7\mathrm{.}30\%$New Zealand Dollars $($NZ$$)6\mathrm{.}58\%7\mathrm{.}06\%$Suppose that Denver Financial's initial loan of $$20,000,000$ must be repaid with a rate of $0\mathrm{.}0061$ after $30-$days.

Institutional speculation

STEP: $3$ of $4$

Suppose that Denver Financial Co$.$ expects the exchange rate of the New Zealand dollar $($NZ$$)$ to appreciate from its current level of $0\mathrm{.}5$ to $0\mathrm{.}53$ in $30$ days. Denver Financial seeks to capitalize on this potential opportunity.

Suppose that Denver Financial begins by borrowing $$20,000,000$ and converting it to New Zealand dollars $($NZ$$).$

The following table shows the short$-$term interest rates $($annualized$)$ in the interbank market.

$\backslash$table$[[$Currency$,\backslash$table$[[$Lending Rate$],[($Adjusted for $30-$day period$)]],\backslash$table$[[$Borrowing rate$],[($Adjusted for $30-$day period$)]]],[$U$.$S$.$ Dollars,$6\mathrm{.}82\%,7\mathrm{.}30\%$