A New York City Bank expects the exchange rate for the euro to appreciate from the spot rate of $0.60 to $0.65 in 90 days. The Bank is able to borrow $15 million or 25 million euros. The short term interest rates (annualized) in the interbank market are as follows:

CURRENCY                                          LENDING RATE                                           BORROWING RATE

U.S Dollars                                                 6.72%                                                            7.2%

Euro                                                           6.48%                                                            6.96%

(a) How will this bank attempt to capitalize on this expected change in exchange rate to make a speculative profit? Estimate the profit

(if any) that could be generated from this strategy.

(b) Assuming the expectation is that the euro will depreciate from $0.60 to $0.55 in 90 days. What change in strategy would be required for the Bank to attempt to earn a speculative profit? Determine the profit (if any) that could be earned.