Question
South Bank Credit Union has been borrowing in the US markets and lending abroad, thereby incurring foreign exchange rate risk. In a recent transaction, it
South Bank Credit Union has been borrowing in the US markets and lending abroad, thereby incurring foreign exchange rate risk. In a recent transaction, it issued a one year $5 million CD at four percent interest and is planning to use the money to fund a loan in Japanese yen at 6 percent interest for a 2 percent expected spread. The current spot rate of US dollars to yen is $0.00950 per yen. Please answer the following: a. New information now indicates that the yen will appreciate such that the spot rate of US dollars to yen is $0.009483 per yen by year end. What should the bank charge on the loan in order to maintain the 2 percent spread?
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