Information for questions 7 to 9: ABC Bank expects the C$ will appreciate agai

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    Information for questions 7 to 9: ABC Bank expects the C$ will appreciate against the dollar from $1.20 to 1.25 over the next 6 months. The
    annualized rates (that is the 6-month rate multiplied by 2) for ABC are:

    Lending Borrowing

    Dollars 4% 5%

    C$ 3% 4%

    ABC has the ability to borrow up to $100 M or C$ 80 M. It can lend as much as it wishes.

    7. ABC should borrow:

    A) $100 M

    B) C$80 M

    C) $50 M and C$41.66 M

    D) $30M and C$55 M

    8. ABC should lend (note the currency it lends at can be different from the currency it borrowed as it can convert at the spot market):

    A) C$80 M

    B) $30 M and C$55 M

    C) C$83.33 M

    D) $96 M

    9. The maximum profit ABC can make (assume it does not money other than that provided by the borrowing capacity set in the question):

    A) $4.167 M

    B) $7.292 M

    C) $1.663 M

    D) $3.23 M

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