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Use the foreign exchange rates in the table below to answer this question. Cinco Bank is headquartered in Mexico and borrows one million Mexican pesos
Use the foreign exchange rates in the table below to answer this question. Cinco Bank is headquartered in Mexico and borrows one million Mexican pesos for one year at six percent from Ocho Bank which is also headquartered in Mexico. Cinco Bank immediately (at T =0) converts the one million Mexican pesos into British pounds and lends out the British pounds for one year at four percent to Richmond Bank which is headquartered in Great Britain. At the end of one year (T=1), Cinco Bank pays off the loan (principal and interest) to Ocho Bank and Richmond Bank pays off the loan (principal and interest) to Cinco Bank. Cinco Bank converts all the British pounds received from Richmond Bank into Mexican pesos. What will be Cinco Bank's profit (or loss) in Mexican pesos at the end of the year? Explain your answer. Hint: see page nine of chapter 16 where we used the box
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