Question #225602
Cal Bank believes the US dollar will appreciate over the next five days from GHS 4.48 to GHS 4.50. The following annual interest rates apply:
Currency
Dollars Ghana Cedis
Lending Rate
7.10% 6.80%
Borrowing Rate
7.50% 7.25%
Cal Bank has the capacity to borrow either GHS 10 million or $5 million. If Cal Bank's forecast is correct, what will its dollar profit be from speculation over the five-day
period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations
Expert's answer
The spot rate is the rate that's associated with the security or a commodity. The profit or loss is calculated by the investors by using this rate.
Calculation of profit on speculation:
As the lending rate of the dollar is 7.1% and the borrowing rate is 7.5%, the profit is 0.4% realized by Cal Bank.
