Question

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.

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