Reference no: EM133069575

1. Trensor Bank believes the Australian dollar (AU$) will appreciate over the next 9 days from $.70 to $.73. The following annual interest rates apply: Currency Lending Rate Borrowing Rate Dollars 6.73% 7.20% Australian dollar (AU$) 6.80% 7.28% Trensor Bank has the capacity to borrow either AU$10 million or $7 million. If Trensor Bank's forecast is correct, how shall Trensor Bank implement its speculating trading activities and what will its dollar profit be from speculation over the nine-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)? (30/360 convention used for the interest calculation, i.e., assuming 360 days a year)

Question options:

A. Trensor Bank shall borrow AU$10 million at the annual rate of 7.28% for 9 days, convert AU$10 million to $ at the rate of $0.70/AU$, invest the $ converted at the annual rate of 6.73% for 9 days. Doing so, Trensor Bank will realize the profit of $309,178.25.

B. Trensor Bank shall borrow $7 million at the annual rate of 7.20% for 9 days, convert $7 million to AU$ at the rate of $0.70/AU$, invest the AU$ converted at the annual rate of 6.80% for 9 days. Doing so, Trensor Bank will realize the profit of $308,837.00.00.

C. Trensor Bank shall borrow AU$10 million at the annual rate of 7.28% for 9 days, convert AU$10 million to $ at the rate of $0.70/AU$, invest the $ converted at the annual rate of 6.73 % for 9 days. Doing so, Trensor Bank will realize the profit of $299,542.25.

D. Trensor Bank shall borrow $7 million at the annual rate of 7.20% for 9 days, convert $7 million to AU$ at the rate of $0.70/AU$, invest the AU$ converted at the annual rate of 6.80% for 9 days. Doing so, Trensor Bank will realize the profit of $299,810.00.

2.Brookshire, Inc. (U.S. based MNC) needs to invest ten million Cambodian riels in its Cambodian subsidiary to support local operations today. Brookshire would like its subsidiary to repay the Cambodian riels in one year. To hedge the exchange rate risk arising from this financing support, Brookshire would engage in a swap transaction involving a forward contract. Thus, in accordance with the swap transaction, Brookshire would

Question options:

A. convert the dollars to Cambodian riels in the spot market today and convert Cambodian riels to dollars in one year at today's one-year forward rate.

B. convert the dollars to Cambodian riels in the spot market today and convert dollars to Cambodian riels in one year at the prevailing spot rate one year later.

C. convert the Cambodian riels to dollars in the spot market today and convert Cambodian riels to dollars in one year at today's one-year forward rate.

D. convert the dollars to Cambodian riels in the spot market today and convert Cambodian riels to dollars in one year at the prevailing spot rate one year later.