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Nittany Banking Corporation (NBC) - a US firm - has US $200 million worth of one-year loans in the US, earning an average rate of
Nittany Banking Corporation (NBC) - a US firm - has US $200 million worth of one-year loans in the US, earning an average rate of return of 6 percent. NBC also has one-year Canadian dollar loans of C$110 million, earning 8 percent in Canada. These are NBC's assets. They amount to US $300 million in total (use the spot rate to convert C\$ to US\$). - NBC's funding source is US $300 million one-year deposits in the US, on which it's paying 4 percent interest. These are NBC's liabilities. They also amount to $300 million in total. - The spot rate is C\$1.10 per US\$1. The one-year forward rate is C $1.14 per US\$1. - NBC hedges its currency risk fully using forwards. What is NBC's weighted average return equal to? You computed NBC's welghted retum and you know how much interest NBC pays to its depositors. Does NBC have a posttive spread (net return)
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