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

question 71

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 is 1.10 euros per dollar (one euro = $0.909) .
$\bullet$ Expected spot rate in five days is 1.15 euros per dollar.
$\bullet$ Fabrizio Bank can borrow 10 million euros.
If Fabrizio Bank attempts to capitalize on the above information, its profit over the five-day period is

• A)2,653,597.22 euros.
• B)455,266.81 euros.
• C)452,426.04 euros.
• D)none of the above

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Definitions:

Progressive

A term often used in the context of taxation or political ideology, indicating policies or stances that aim to redistribute resources from the more affluent to the less affluent.

Income Tax

Tax levied by a government directly on income, especially an annual tax on personal income.

Work and Leisure

Describes the balance between the time and effort spent in gainful employment and the time spent in recreational activities or rest.

Second Best

Refers to a situation wherein the optimal condition cannot be achieved, and the best possible alternative under the given restrictions is adopted.