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Assume a bank holds assets located in Europe. They are worth 50,000,000 and currently earn 5.25% per year. The bank also holds liabilities in Europe.
- Assume a bank holds assets located in Europe. They are worth 50,000,000 and currently earn 5.25% per year. The bank also holds liabilities in Europe. They total 22,600,000 and currently pay 3.45% per year. The current spot rate is 0.86 for $00. Assume the exchange rate changes to 0.75 for $1.00 to answer the following questions.
- What happened to the dollar? Did it appreciate or depreciate against the euro? (1 points)
- How much is the NII in euros? (2 points)
- How much is the NII in dollars before the exchange rate change? (2 points)
- In dollars, how much did the NII change due to the change in the exchange rate? (2 points)
- In dollars, how much did the value of the assets change due to the change in the exchange rate? (1 points)
- In dollars, how much did the value of the liabilities change due to the change in the exchange rate? (1 points)
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