1. Assume that a bank has assets located in Singapore that are worth S$150 million, on which it earns an average of 8 per cent per year. The bank has S$100 million in liabilities, on which it pays an average of 6 per cent per year. The current spot rate is S$1.50/A$1.

If the exchange rate at the end of the year is S$2.00/A$1, will the Australian dollar have appreciated or depreciated against the Singapore dollar?

Given the change in the exchange rate, what is the effect in Australian dollars on the net interest income from the foreign assets and liabilities?

(Note: The net interest income is interest income minus interest expense.)

What is the effect of the exchange rate change on the value of assets and liabilities in Australian dollars? LO 4.5