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Welles Fargo Bank, based in Los Angeles, California, has the ability to borrow 30 million U.S. dollars (USD) at 5% annualized. It can then invest
Welles Fargo Bank, based in Los Angeles, California, has the ability to borrow 30 million U.S. dollars (USD) at 5% annualized. It can then invest in either the euro (EUR), the Australian dollar (AUD), or the Canadian dollar (CAD). For simplicity, suppose that the lending rate of all of the euro, the Australian dollar, and the Canadian dollar is 3% annualized over a 10-day time period. The spot rates and the expected rates of the euro, Australian dollar and the Canadian dollar are given in the table below.
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