Assume the following information regarding U.S. and European annualized interest rates:
Hint: Please look over sample question in Unit 4 before attempting this question for it is a tough one.
U.S. Dollar ($) Euro (â‚¬)
Amegy Bank can borrow either $20 million or â‚¬20 million. The current spot rate of the euro is $1.14. Furthermore, Amegy Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Amegy Bank’s dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days? Assume 360 days in a year for simplicity and set your decimal to at least 8 places.