Question
1. American Cullumber management is planning to make a $3.9 million loan to a French firm. Currently, LIBOR is at 1.2 percent. American management considers
1. American Cullumber management is planning to make a $3.9 million loan to a French firm. Currently, LIBOR is at 1.2 percent. American management considers a default risk premium of 0.80 percent, a foreign exchange rate risk premium of 0.40 percent, and a country risk premium of 0.13 percent to be appropriate for this loan. What is the loan rate charged by American Cullumber?
2. The foreign exchange department of Bank of America has a bid quote on Canadian dollars (C$) of C$0.8208/$. If the bank typically tries to make a bid-ask spread of 0.5 percent on these foreign exchange transactions, what will the ask rate have to be?
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