SECTION B B2. [Foreign Exchange Risk; Total = 10 marks] FIM Bank is an Australian bank. The bank has been borrowing in the Australian markets and lending abroad, thus incurring foreign exchange risk. In a recent transaction, it borrowed $AUD 5 million via a one-year security at 4.5 per cent per annum nominal and funded a loan in Swiss Francs (CHF) at 5.0 per cent. The spot rate at the time of this transaction was 1.5152 AUD = 1 CHF (AUD/CHF = 1.5152). (a) Information received immediately after the transaction closing indicated that the Swiss Franc would depreciate to AU$1.5102/CHF 1 by year end (.e. 1.5102 AUD - 1 CHF). If the information is correct, what will be the realised spread on the loan?Assume adjustments in principal values are included in the spread. (4 marks] (b) Suppose the bank had an opportunity to sell one-year forward Swiss Francs at AU$ 1.5121/CHF 1 (ie. 1.5121 AUD - 1 CHF). What would have been the spread on the loan if the bank had hedged forward its foreign exchange exposure? [3 marks] DELL F11 F12 F10 F7 FB FO F6 F2 F3 F4 FS A * & $ % 5 . w # 8 9 7 4 LO P