Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in one-year Euro () bonds at an annual rate of 6.5 percent after converting them at the current spot rate of 1.75/$. Both interest and principal are paid at the end of the year.What is the spread earned by the bank at the end of the year if the exchange rate remains at 1.75/$?

A. 0.50 percent.

B. 1.00 percent.

C. 1.5 percent.

D. 2.0 percent.

E. 2.5 percent.

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in one-year Euro () bonds at an annual rate of 6.5 percent after converting them at the current spot rate of 1.75/$. Both interest and principal are paid at the end of the year. What is the spread earned by the bank if the end-of-year exchange rate is 1.77/$? A. -1.00 percent. B. -0.70 percent. C. -0.25 percent. D. 0.00 percent. E. 0.20 percent.

103. An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in one-year Euro () bonds at an annual rate of 6.5 percent after converting them at the current spot rate of 1.75/$. Both interest and principal are paid at the end of the year. What is the spread earned if the bank can sell one-year forward Euros at 1.755/$? A. -0.70 percent. B. -0.25 percent. C. 0.00 percent. D. 0.20 percent. E. 0.50 percent.

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in one-year Euro () bonds at an annual rate of 6.5 percent after converting them at the current spot rate of 1.75/$. Both interest and principal are paid at the end of the year. Assume that instead of investing in Euro bonds at a fixed rate of 6.5 percent, it invests them in variable rates of LIBOR + 1.5 percent, reset every six months. The current LIBOR rate is 5 percent. What is the annual spread earned by the bank if LIBOR at the end of six months is 5.5 percent? Assume both interest and principal will be reinvested in six months. Assume the exchange rate remains at 1.75/$ at the end of the year. A. 0.50 percent. B. 0.68 percent. C. 0.86 percent. D. 0.90 percent. E. 0.95 percent.

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in one-year Euro () bonds at an annual rate of 6.5 percent after converting them at the current spot rate of 1.75/$. Both interest and principal are paid at the end of the year. Assume that instead of investing in Euro bonds at a fixed rate of 6.5 percent, the FI invests them in variable rates of LIBOR + 1.5 percent, reset every six months. The current LIBOR rate is 5 percent. Assume both interest and principal will be reinvested in six months. Assume the exchange rate remains at 1.75/$ at the end of the year. What should be the LIBOR rates in six months in order for the bank to earn a 1 percent spread? A. 5.25 percent. B. 5.48 percent. C. 5.76 percent. D. 5.86 percent. E. 5.94 percent.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook On Corporate Governance In Financial Institutions

Authors: Christine A. Mallin

1st Edition

1784711780, 978-1784711788

More Books

Students also viewed these Finance questions

Question

5. Describe the visual representations, or models, of communication

Answered: 1 week ago