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Speculating on Anticipated Exchange Rates

Citi Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist:

Currency Lending Rate Borrowing Rate

US Dollar 7.0% 7.2%
Singapore 22.0% 24.0%

Citi Bank considers borrowing 10 million Singapore dollars in the interbank market and investing the funds in dollars for 60 days. Estimate the profits or losses that could be earned from this strategy.

Should Citi bank pursue this strategy?

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Speculating on Anticipated Exchange Rates
Citi Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist:

Currency ...

Solution Summary

This solution is comprised of a detailed explanation to answer whether Citi Bank should borrow Singapore dollar and lend to US market.

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