Question

QUESTION 3 An FI has a 1-year 8-percent US $160 million loan financed with a 1-year...

QUESTION 3

An FI has a 1-year 8-percent US $160 million loan financed with a 1-year 7-percent UK ≤100 million CD. The current exchange rate is $1.60/≤.

If the exchange rate remains the same, what is the dollar spread earned by the bank at the end of the year?

$750,000.

$1,000,000.

$1,250,000.

$1,600,000.

$1,750,000.

Homework Answers

Answer #1

Fourth option 1,600,000 is correct

USD UK Ex rate
a Amount 160 100 1.6
b Interest rate 8% 7%
c= a*b Interest amount          12.8            7.0
d= a+c Accumulated balance     172.80     107.00
e Ex rate 1.6
f= d*e UK amount in USD     171.20     107.00 1.6
g= d-f Dollar spread          1.60
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