Bank USA just made a one-year, $10 million loan that pays 10 percent interest annually. The loan
Question:
Bank USA just made a one-year, $10 million loan that pays 10 percent interest annually. The loan was funded with a Swiss franc–denominated one-year deposit at an annual rate of 6 percent. The current spot rate is SFr 0.9500/$1.
a. What will be the net interest income in dollars on the one-year loan if the spot rate at the end of the year is SFr 0.9300/$1?
b. What will be the net return on the loan?
c. What is the total effect on net interest income and principal of this transaction given the end-of-year spot rates in part (a)?
d. How far can the SFr/$ appreciate before the transaction will result in a loss for Bank USA?
Step by Step Answer:
Financial Institutions Management A Risk Management Approach
ISBN: 9781266138225
11th International Edition
Authors: Anthony Saunders, Marcia Millon Cornett, Otgo Erhemjamts