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Blue Star Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $.21 to $.20 in 20 days. The
Blue Star Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $.21 to $.20 in 20 days. The following interbank lending and borrowing rates exist: CURRENCY LENDING RATE BORROWING RATE U.S. dollar 7.0% 7.3% Mexican peso 7.5% 7.7% Assume Blue Star Bank has a borrowing capacity of either $10 million or 30 million pesos in the interbank market, depending on which currency it wants to borrow. How could Blue Star Bank attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy
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