East Bank has purchased a 5 million one-year Swiss franc (Sf) loan that pays 6 percent interest
Question:
East Bank has purchased a 5 million one-year Swiss franc
(Sf) loan that pays 6 percent interest annually. The spot rate of U.S. dollars for Swiss francs (CHF/USD) is 1.0175. It has funded this loan by accepting a Canadian dollar (C$)–
denominated deposit for the equivalent amount and maturity at an annual rate of 4 percent. The current spot rate of U.S.
dollars for Canadian dollars (CAD/USD) is 0.7710. (LG 9-5)
a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Sfs and U.S. dollars for C$s at the end of the year are 1.0310 and 0.7680, respectively?
b. What should the spot rate of U.S. dollars for C$s be in order for the bank to earn a net interest income of
$108,000 (disregarding any change in principal values)?
AppendixLO1
Step by Step Answer:
ISE Financial Markets And Institutions
ISBN: 9781265561437
8th International Edition
Authors: Anthony Saunders, Marcia Cornett, Otgo Erhemjamts