Question
Problem 3: Bronco Bank has the following assets and liabilities: Assets Liabilities $300 million U.S. loans (6%) $300 million U.S. CDs (4%) $200 million equivalent
Problem 3:
Bronco Bank has the following assets and liabilities:
Assets | Liabilities |
$300 million U.S. loans (6%) | $300 million U.S. CDs (4%) |
$200 million equivalent German loans (10%) (loans made in euros) | $200 million equivalent German CDs (7%) (deposits raised in euros) |
The current spot exchange rate of dollars for euros is $1.25/.
Calculate the 1) return on the banks investment portfolio, 2) the average cost of funds, and 3) the net interest margin/spread for the bank assuming: a) the spot exchange rate does not change over the year. b) the spot exchange rate is $1.15/ at years end. c) the spot exchange rate is $1.35/ at years end. Round all percentages to 4 decimal places.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started