Question
Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to appreciate from its current level of 0.5 to 0.55
Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to appreciate from its current level of 0.5 to 0.55 in 30 days. Denver Financial seeks to capitalize on this potential opportunity.
Suppose that Denver Financial begins by borrowing $30,000,000 and converting it to New Zealand dollars (NZ$).
The following table shows the short-term interest rates (annualized) in the interbank market.
Currency | Lending Rate | Borrowing rate |
---|---|---|
(Adjusted for 30-day period) | (Adjusted for 30-day period) | |
U.S. Dollars | 6.62% | 7.10% |
New Zealand Dollars (NZ$) | 6.38% | 6.86% |
After exchanging $30,000,000 for New Zealand dollars, Denver Financial will have NZ $_______ (New Zealand dollars).
a.) $60,000,000
b.) $42,000,000
c.)$48,000,000
d.)54,000,000
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