20

A bank purchases a six-month $4 million Eurodollar deposit at an interest rate of 8.5 percent per year. It invests the funds in a six-month Swedish krona bond paying 9.5 percent per year. The current spot rate of U.S. dollars for Swedish krona is $0.1800/SKr.

The six-month forward rate on the Swedish krona is being quoted at $0.1810/SKr. What is the net spread earned for six months on this investment if the bank covers its foreign exchange exposure using the forward market? (per 6 months)

Select one:

a. 1.082

b. 2.154

c. 0.754

d. 1.582