Answer:
The Trainor Bank's dollar profit from speculating if the spot rate of the euro is in fact $1.10 in 90 days is $5,79,845
Explanation:
Bank Z borrow = €20 million
Spot rate 1€ = $1.13
Convert € in to $
€20 million *1.13 = $22.60 million
Lend $2,26,00,000 at interest rate of 6.73% for 90 days ( Assume total number of days in a year is 360)
= $2,26,00,000 + $2,26,00,000*(90/360)*6.73%
= $2,29,80,245
We need to find the euro to be repaid = €2,00,00,000 + €2,00,00,000*7.28%*(90/360)
= €2,03,64,000
To be repaid in $:-
€2,03,64,000*1.10 = $2,24,00,400
Profit from speculating in $ = $2,29,80,245 - $2,24,00,400
= $5,79,845
Therefore, The Trainor Bank's dollar profit from speculating if the spot rate of the euro is in fact $1.10 in 90 days is $5,79,845
