Assume the Following Information $\bullet$ Interest Rate on Borrowed Euros Is 5 Percent Annualized

question 20

Multiple Choice

Assume the following information.
$\bullet$ Interest rate on borrowed euros is 5 percent annualized
$\bullet$ Interest rate on dollars loaned out is 6 percent annualized
$\bullet$ Spot rate for €0.83 per dollar (one € = $1.20)
$\bullet$ Expected spot rate in five days is €0.85 per dollar
$\bullet$ Alonso Bank can borrow €10 million
What is the euro profit to Alonso Bank over the five-day period from shorting euros and going long on dollars?

• A)€200,311.11
• B)€207,111.11
• C)€201,555.56
• D)none of the above

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