Describe the steps Acacia should take to profit from shorting euros and going long on dollars, show your calculations.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Acacia Bank expects the euro to depreciate against the dollar and plans to take a short position in euros and a long position in dollars. Assume the following
1. Interest rate on borrowed euros is 5 percent annualized
2. Interest rate on dollars loaned out is 6 percent annualized
3. Spot rate is 0.90 per dollar
4. Expected spot rate in ten days is 0.95 per dollar
5. Acacia Bank can borrow 10 million
Describe the steps Acacia should take to profit from shorting euros and going long on dollars, show your calculations.

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