Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bank USA recently purchased $11.8 million worth of euro-denominated one-year CDs that pay 12 percent interest annually. The current spot rate of U.S. dollars for

image text in transcribed
image text in transcribed
Bank USA recently purchased $11.8 million worth of euro-denominated one-year CDs that pay 12 percent interest annually. The current spot rate of U.S. dollars for euros is $1104/1 a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/1 ? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/1 ? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g. 32.161)) Sun Bank USA has purchased a 16 million one-year Australlan dollar loan that pays 15 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 13 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/21. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and US. dollars for BPs at the end of the year are \$0.588/A\$1 and \$1.450/\&1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars. Round your final answer to the nearest whole dollar. (e.g. 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $250,000 (disregarding any change in principal values)? (Round your answer to 5 decimal places. (e.g., 32.16161))

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

The Budget Building Book For Nonprofits

Authors: Murray Dropkin, Jim Halpin, Bill La Touche

2nd Edition

0787996033, 978-0787996031

More Books

Students also viewed these Finance questions