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1. Jewel Bank expects that the Australian dollar will depreciate against the U.S dollar from...

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1. Jewel Bank expects that the Australian dollar will depreciate against the U.S dollar from its spot rate of $0.77 to $0.75 in 120 days. The following interbank lending and borrowing rate exist: Currency Lending Rate (per annum) Borrowing Rate (per annum) U.S dollar 5% 5.5% Australian dollar 10% 14% Jewel Bank considers borrowing AUD10,000,000 in the interbank market and investing the funds in U.S. dollars for 120 days. Calculate the profits (or losses) that could be earned from this strategy. Should Jewel Bank pursue this strategy? (6 marks)

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