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The ABC Bank of USA expects the Swiss franc to depreciate against the dollar from its current spot rate of $1.0082 to $.9696 (per unit)

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The ABC Bank of USA expects the Swiss franc to depreciate against the dollar from its current spot rate of $1.0082 to $.9696 (per unit) in 60 days. The following rates are available in the interbank market. All rates are compounded daily on a 360 days/year basis. LENDING RATE BORROWING RATE 5.5 6.0 U.S. Switzerland 5.3 5.8 Assume that the bank has a borrowing capacity of either $5m or SF7m in the interbank market. Show how the Bank could capitalize on its expectation using only its borrowing capacity and use your analysis to answer the question below. Which of the following represents a correct (profitable) strategy in this case? ABC must in general, borrow the depreciating currency and invest in the appreciating currency. ABC must in general, borrow the appreciating currency and invest in the depreciating currency. ABC must be able to borrow at a lower rate and invest at a higher rate regardless changes in exchange rates ABC must in general, avoid dealings in a depreciating currency. All of the above answers are correct

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