Question
PLEASE ITS URGENT, PLEASE ITS URGENT A US financial institution has $100 million in assets that pay an interest rate of LIBOR + 1.5 %.
PLEASE ITS URGENT, PLEASE ITS URGENT
A US financial institution has $100 million in assets that pay an interest rate of LIBOR + 1.5 %. The assets are funded using a GBP 62.5 million CD on which the interest rate is 8.5 %. The financial institution gets into a swap deal where it sends floating payments at LIBOR plus 1% in dollars in return of receiving fixed payments in pounds at 10%. What is not true about this swap deal if today's exchange rate is $1.6/GBP.
A. The US financial institution faces a problem off the balance sheet if dollar depreciates.
B. The US financial institution faces a problem on the balance sheet if dollar depreciates.
C. The US financial institution faces a problem on the balance sheet if LIBOR falls.
D. The US financial institution is facing a currency risk as well as an interest rate risk.
E. The balance sheet and the off balance sheet swap generate a net interest income of 2.5% if the exchange rate remains the same.
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