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9*. Sun Bank of Byron Bay purchased a 16 million euro one-year loan that pays 12 per cent interest annually. The spot rate for euro
9*. Sun Bank of Byron Bay purchased a 16 million euro one-year loan that pays 12 per cent interest annually. The spot rate for euro is 1.60/$1. Sun Bank has funded this loan by accepting a UK pound-(GBP) denominated deposit for the equivalent amount and maturity at an annual rate of 10 per cent. The current spot rate of the UK pound is $1.60/1. (a) What is the net interest income earned in dollars on this one-year transaction if the spot rates at the end of the year are 1.70/$1 and $1.85/1? (b) What should be the GBP to AUD spot rate in order for the bank to earn a net interest margin of 4 per cent? (c) Does your answer to part (b) imply that the dollar should appreciate or depreciate against the pound
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