Question
North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year
North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $2.40 million CD at 5 percent and is planning to fund a loan in British pounds at 7 percent for a 2 percent expected spread. The spot rate of U.S. dollars for British pounds is $1.4500/1.
a. | However, new information now indicates that the British pound will appreciate such that the spot rate of U.S. dollars for British pounds is $1.4300/1 by year-end. Calculate the loan rate to maintain the 2 percent spread? (Do not round intermediate calculations. Round your answer to 2 decimal places.(e.g., 32.16))
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