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6. A U.S.-based insurance company owns a 2,000,000 corporate bond and has of 2,400,000 of claims reserves. It has also bought 500,000 and sold 700,000.
6. A U.S.-based insurance company owns a 2,000,000 corporate bond and has of 2,400,000 of claims reserves. It has also bought 500,000 and sold 700,000. The current exchange rate is $1.18/.
a. Calculate the banks dollar net exposure to pounds. Note that your answer should be in U.S. dollars. (8 points)
b. If the exchange rate depreciates by 2%, what is the banks dollar expected gain or loss? (4 points)
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