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Suppose Trust Bank expects Mexican peso (MXP) to appreciate from its current spot rate of $0.15 to $0.17 in one month. The interbank lending and
Suppose Trust Bank expects Mexican peso (MXP) to appreciate from its current spot rate of $0.15 to $0.17 in one month. The interbank lending and borrowing rates are as follows:
Lending rate Borrowing rate MXP 8.5% 8.7% USD 8.0% 8.3%
Trust Bank has a borrowing capacity of either $10 million or MXP 70 million in the interbank market, depending on which currency it wants to borrow.
If Trust Bank capitalized on its expectation, what would its profit from such a trading strategy be?
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