Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to appreciate from its current level of 0.5 to 0.55 in 30 days. Denver Financial seeks to capitalize on this potential opportunity. Suppose that Denver Financial begins by borrowing $30,000,000 and converting it to New Zealand dollars (NZ$). The following table shows the short-term interest rates (annualized) in the interbank market.
Currency Lending Rate Borrowing rate
(Adjusted for 30-day period) (Adjusted for 30-day period)
U. S. Dollars 6.62% 7.10%
New Zealand Dollars (NZ$) 6.38% 6.86%
Suppose that Denver Financial takes its NZ$60,000,000.00 and invests it. Denver Financial can earn a 0.0053 percent return after 30-days. Hint: Assume 360 days in a year At the end of 30-days, Denver Financial will have a total of NZ:(New Zealand dollars) from the investment.
a. $54287100
b. $42223300
c. $60319000
d. $48255200
Answers: 3
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Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to appre...
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