Speculative trade on your expectations of exchange rate

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You have a borrowing capacity of 5 million USD, and 500 million JPY.

You observe that the bid/ask interest rate quote on USD is 1%/3%. The bid/ask interest rate quote on the JPY is 0.5%/2%. The spot exchange rate is 92.2 JPY/USD, and you expect that the USD is going to appreciate to 101.3 JPY/USD over the next 6 months (180 days).

If you conduct a speculative trade on your expectations of exchange rate change, and your expectations are correct, what will be your total profit, as measured in USD?

Reference no: EM132049639

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