Ched A British bank issues a $190 million, three-year Eurodollar CD at a fixed annual rate of 8 percent. The proceeds of the CD are lent to a British company for three years at a fixed rate of 10 percent. The spot exchange rate of pounds for US dollars is 1.50/US$. 0-1. Is this expected to be a profitable transaction ex ante? 2-2. What are the cash flows if exchange rates are unchanged over the next three years? b. If the US dollar is expected to appreciate against the pound to $165/$1,61815/$1, and 2.00/$1 over the next three years, respectively, what will be the cash flows on this transaction? c. If the British bank swaps U.S. dollar payments for British pound payments at the current spot exchange rate, what are the cash flows on the swap and on the entire hedged position? Assume that the US dollar appreciates at the same rates as in part (0) int Conces Complete this question by entering your answers in the tabs below. Required A1 Required AZ Required B Required c Is this expected to be a profitable transaction ex ante? is this expected to be a profitable transaction ex ante? Required A2 > Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required Is this expected to be a profitable transaction ex ante? Is this expected to be a profitable transaction ex ante? ces Required A2 > Yes NO Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required What are the cash flows if exchange rates are unchanged over the next three years? (Do not round intermediate calculations. Enter rounded to 2 decimal places. (e... 32.16)) British Loan f 1 Eurodollar CD Cash Outflow (U.S.S) million million million (E) million million million Cash Inflow (E) million million million Spread () million million million 2 3 Complete this question by entering your answers in the tabs below. Required Ai Required A2 Required B Required If the U.S. dollar is expected to appreciate against the pound to 1.65/$1, E1.815/$1, and 2.00/$1 over the next three years, respective the cash flows on this transaction? (Negative amounts should be indicated by a minus sign. Do not round Intermediate calculations. Enter millions rounded to 2 decimal places. (e.g. 32.16)) British Loan 1 Eurodollar CD Cash Outflow (U.S.5) million million million () million milion maison Cash Inflow (E) million million milion (E) million million million 2 3 Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required c If the British bank swaps U.S. dollar payments for British pound payments at the current spot exchange rate, what are the cas entire hedged position? Assume that the U.S. dollar appreciates at the same rates as in part (b). (Do not round intermediate in millions rounded to 2 decimal places. (e.g. 32.16)) Cash Flow (E) Swap Payments (5) Net Swap Cash Flow (C) Total Cash Flow (E) 1 million million million million 2 million million million million 3 million million million million 1
