Question
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625//A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60//1.
A. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPS at the end of the year are $0.588//A$1 and $1.350//1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, rather than in millions of dollars. Round your final answer to the nearest whole dollar. (e.g., 32))
B. What should the spot rate for of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $230000m9 disregarding any change in principal values)? (Round you answer to 5 decimal places.
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