Currency Lending Rate Borrowing Rate
US Currency ($) 6.73% 7.20%
Foreign Currency 6.80% 7.28%
Milly Bank can borrow either $20 million or FC20 million. The current spot rate of the FC is $1.13.
Furthermore, Milly Bank expects the spot rate of the FC to be $1.10 in 90 days.
What is Milly Bank’s
dollar profit from speculating if the spot rate of the FC is indeed $1.10 in 90 days?
A) $579,845.
B) $583,800.
C) $588,200.
D) $584,245.
I got something similar during an interview --- how would you guys solve?
poster below wins
You borrow FC 20 million at 7.28% and convert it to $22,600,000 (at 1.13 spot rate) and lend it out at 6.73%.
You will have to pay back FC 20 million (1+(7.28%90/360)) = 20,364,000
but the money you lent out at will be worth:
$22,600,000(1+(6.73%90/360)) = 22,980,245 which you will convert back into FC at a spot rate of 1.10 and get 20,891,131.82.
Pay off what you borrowed 20,891,131.82 - 20,364,000 = 527,131.82 and convert that back into dollars at spot rate of 1.10 to get $579,845.
...I just probably did your homework for your finance class, because I hope that you weren't applying for an S&T position if you can't solve a problem like this.
I doubt they'd ask you a question like this without paper during your interview. This is most likely a simple homework problem.
and if they did ask you this question in an interview, I HIGHLY doubt they'd give it to you in multiple choice format
i think he said "something similar"...
probably watered down version with rounder numbers and no mult choice
This is definitely a HW question. Do your own fucking HW. Or listen to stk...but given the completely retarded things he's said in the past and his general inability to do math, that may be risky (full disclosure: I haven't bothered to read what he's written this time)
LOL! Look who's talking... You're the one posting retarded things on this board.
And as to my "inability to do math"; I scored a raw score of 51 on the quantitative section of the GMAT which equates to a tie for the highest score ever recorded on that section (from what I've read on the internet). Good luck achieving anything even close.
So you didn't get any questions wrong on a relatively simple test of algebra, reasoning, and concentration? Forgive me, but I don't think stephen hawking is shaking in his boots
god, i forgot so much about my finance courses. we used to to a table to solve this type of questions, much easier.
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