Question

In: Finance

)(a)Suppose the MIDLAND bank expects the New Zealand dollar (NZ$) will depreciate against the US$ from...

)(a)Suppose the MIDLAND bank expects the New Zealand dollar (NZ$) will depreciate against the US$ from its spot rate of $0.43 to $0.42 in 60 days. The following interbank lending and borrowing rates exist: Currency Lending Rate Borrowing Rate US$ 7% 7.2% NZ$ 22.0% 24% Midland Bank has access to NZ$ 10million or US$ 4.3million.How can the bank attempt to make a speculative profit based on expected exchange rate movement without risking depositors money? Estimate the profit (or losses) that could be earned from this strategy. (b)Identify the factors which determine changes in equilibrium exchange rate. Discuss how any two of these factors affect equilibrium exchange rate.

Solutions

Expert Solution

See below quick comparision table showing how the most popular currency requirements for the US Dollar / New Zealand Dollar exchange rate conversions on the 27th of September compared.

US Dollars into New Zealand Dollars
New Zealand Dollars into US Dollar
Date
1 USD = 1.3860 NZD
0.7215 USD = 1 NZD
on 27/09/2017
5 USD = 6.9300 NZD
3.6075 USD = 5 NZD
on 27/09/2017
10 USD = 13.8600 NZD
7.2150 USD = 10 NZD
on 27/09/2017
15 USD = 20.7900 NZD
10.8225 USD = 15 NZD
on 27/09/2017
20 USD = 27.7200 NZD
14.4300 USD = 20 NZD
on 27/09/2017
25 USD = 34.6500 NZD
18.0375 USD = 25 NZD
on 27/09/2017
50 USD = 69.3000 NZD
36.0750 USD = 50 NZD
on 27/09/2017
100 USD = 138.6000 NZD
72.1500 USD = 100 NZD
on 27/09/2017
500 USD = 693.0000 NZD
360.7500 USD = 500 NZD
on 27/09/2017
1000 USD = 1,386.0000 NZD
721.5000 USD = 1000 NZD
on 27/09/2017
2500 USD = 3,465.0000 NZD
1,803.7500 USD = 2500 NZD
on 27/09/2017
5000 USD = 6,930.0000 NZD
3,607.5000 USD = 5000 NZD
on 27/09/2017
10000 USD = 13,860.0000 NZD
7,215.0000 USD = 10000 NZD
on 27/09/2017
25000 USD = 34,650.0000 NZD
18,037.5000 USD = 25000 NZD
on 27/09/2017
50000 USD = 69,300.0000 NZD
36,075.0000 USD = 50000 NZD
on 27/09/2017
100000 USD = 138,600.0000 NZD
72,150.0000 USD = 100000 NZD
on 27/09/2017
250000 USD = 346,500.0000 NZD
180,375.0000 USD = 250000 NZD
on 27/09/2017
500000 USD = 693,000.0000 NZD
360,750.0000 USD = 500000 NZD
on 27/09/2017
1000000 USD = 1,386,000.0000 NZD
721,500.0000 USD = 1000000 NZD
on 27/09/2017

jeff jeffy answered 2 years ago
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