Use the information below to calculate the expected gain or loss on the carry tradestrategy for an initial borrowed amount of 1,000,000 (you will have to determine thecurrency of borrowing). Keep at least two decimals in your calculations but round upor down at the end (enter the final answer without decimals).Current spot rate of Polish zloty(PLN/EUR)Expected future spot rate of of zloty(PLN/EUR) in three monthsAnnualized three-month interestrate on Polish zloty (%)Annualized three-month interestrate on euros (%)3,119,971135,769 margin of error +/- 104.644.113.771.53

Determine the currency of borrowing Since the interest rate on Polish zloty is higher than the…

Answered: future spot rate of of zloty in three…

future spot rate of of zloty in three months R) d three-month interest lish zloty (%) d three-month interest ros (%) 4.11 3.77 1.53

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

Section: Chapter Questions

Problem 1PS

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Use the information below to calculate the expected gain or loss on the carry trade
strategy for an initial borrowed amount of 1,000,000 (you will have to determine the
currency of borrowing). Keep at least two decimals in your calculations but round up
or down at the end (enter the final answer without decimals).
Current spot rate of Polish zloty
(PLN/EUR)
Expected future spot rate of of zloty
(PLN/EUR) in three months
Annualized three-month interest
rate on Polish zloty (%)
Annualized three-month interest
rate on euros (%)
3,119,971
135,769 margin of error +/- 10
4.64
4.11
3.77
1.53

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Step 1: Determine the currency of borrowing

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Step 2: Convert the interest earned to Polish zloty at the current spot rate

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Step 3: Calculate the expected gain or loss from the change in the exchange rate

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