Zena Bank expects the euro to depreciate against the dollar and plans to take a short position in euros and a long position in dollars. Assume the following:

1. Interest rate on borrowed euros is 5 percent annualized

2. Interest rate on dollars loaned out is 6 percent annualized

3. Spot rate is 0.90 per dollar

4. Expected spot rate in ten days is 0.95 per dollar

5. Zena Bank can borrow 10 million

Describe the steps Zena should take to profit from shorting euros and going long on dollars.

Zena Bank should take the following steps:

1. Borrow 10 million and convert to $----------------------------------

2. Invest the $11,111,111 million for ten days at 6 percent annualized (or .1667 percent over ten days), which will generate $-------------------

3. After ten days, convert the $------------- into euros at the existing spot rate, which converts to --------------------

4. Pay back the loan of 10 million plus interest of 5 percent annualized (.1389 percent over ten days), which equals ------------------------

Thus, Zena earns ---------------- over a ten-day period.