Assume the following information:
-Interest rate on borrowed euros is 5 percent annualized
-Interest rate on dollars loaned out is 6 percent annualized
-Spot rate is €1.10 per dollar (€=$0.909)
-Expexted sport rate in five days is €1.15 per dollar
-Fabrizio Bank can borrow 10 million euros
As part of a strategy to capitalize on the expected exchange rate movement, the bank could ___ euros and ___ dollars.
A. Loan out; borrow
B. Loan out; loan out
C. Borrow; borrow
D. Borrow; loan out
E. None of these is correct
If the bank attempts to capitalize on the above information, its profit over the 5 day period is ___.
A. €455,266.81
B. €452,426.04
C. €2,653,597.22
D. None of these is correct