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Q5) A U.S. insurance company invests $1,000,000 in a private placement of British bonds. Each bond pays 300 in interest per year for 20 years.

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Q5) A U.S. insurance company invests $1,000,000 in a private placement of British bonds. Each bond pays 300 in interest per year for 20 years. If the current exchange rate is 1.5612 for U.S.$1, what is the nature of the insurance company's exchange rate risk? Specifically, what type of exchange rate movement concerns this insurance company? 2 marks Q6) The bond has a 10-year maturity, a fixed-rate coupon of 10 percent paid at the end of each year, and a par value of $10,000. The certificate of deposit has a 1-year maturity and a 6 percent fixed rate of interest. The FI expects no additional asset growth. What will be the net interest income (NII) at the end of the first year? 2 marks Dar Al Uloom IL

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