Question

Six months ago, Qualitybank issued a $126 million, one-year-maturity CD, denominated in British pounds (Euro CD). On the same date, $73 million was invested in a £-denominated loan and $53 million in a U.S. Treasury bill. The exchange rate on this date was £1.5382 for $1. If you assume no repayment of principal and if today’s exchange rate is £1.1905 for $1: |

a. |
What is the current value of the Euro CD principal in dollars
and pounds? |

Euro CD principal in pounds | £ |

Euro CD principal in dollars | $ |

b. |
What is the current value of the British loan principal in
dollars and pounds? |

British loan principal in pounds | £ |

British loan principal in dollars | $ |

c. |
What is the current value of the U.S. Treasury bill in dollars
and pounds? |

U.S. Treasury bill in pounds | £ |

U.S. Treasury bill in dollars | $ |

d. |
What is Qualitybank’s profit/loss from this transaction in
dollars and pounds? |

Qualitybank’s (Click to select)profitloss in pounds | £ |

Qualitybank’s (Click to select)profitloss in dollars | $ |

Answer #1

Bank USA recently purchased $10.9 million worth of
euro-denominated one-year CDs that pay 10 percent interest
annually. The current spot rate of U.S. dollars for euros is
$1.104/€1.
a. Is Bank USA exposed to an appreciation or depreciation of the
dollar relative to the euro?
b. What will be the return on the one-year CD if the dollar
appreciates relative to the euro such that the spot rate of U.S.
dollars for euros at the end of the year is...

Suppose we have the
following exchange rate quotes:
in US$
per US$
Euro area
(€)
1.3604
.7351
Mexico
(Ps)
.0781
12.8041
a. If you have $200, you can get euros.
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16. Use the €/$ exchange rate
in your calculation.)
b. One euro is worth $ . (Do not round
intermediate calculations and round your answer to 4 decimal
places, e.g., 32.1616.)
c....

Sun Bank USA has purchased a 8 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...

Sun Bank USA has purchased a 32 million one-year Australian
dollar loan that pays 16 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
14 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...

Jiminy's Cricket Farm issued a 30-year, 6.3 percent semiannual
bond 7 years ago. The bond currently sells for 107.8 percent of its
face value. The book value of this debt issue is $149 million. In
addition, the company has a second debt issue, a zero coupon bond
with 11 years left to maturity; the book value of this issue is $93
million, and it sells for 62.2 percent of par. The company’s tax
rate is 24 percent.
1. What is...

Jiminy's Cricket Farm issued a 30-year, 6.6 percent semiannual
bond 6 years ago. The bond currently sells for 108.1 percent of its
face value. The book value of this debt issue is $152 million. In
addition, the company has a second debt issue, a zero coupon bond
with 10 years left to maturity; the book value of this issue is $99
million, and it sells for 62.5 percent of par. The company’s tax
rate is 22 percent.
What is the...

Suppose we have the following exchange rate quotes:
in US$
per US$
Euro area (€)
1.3570
.7369
Mexico (Ps)
.0781
12.8057
a. If you have $250, you can get euros.
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16. Use the €/$ exchange rate
in your calculation.)
b. One euro is worth $ . (Do
not round intermediate calculations and round your answer to 4
decimal places, e.g., 32.1616.)
c. If you...

What is the price of a U.S. Treasury bill with 87 days to
maturity quoted at a discount yield of 2.15 percent? Assume a $1
million face value. (Enter your answer in dollars not in millions.
Do not round intermediate calculations. Round your answer to 2
decimal places.)

North Bank has been borrowing in the U.S. markets and lending
abroad, thereby incurring foreign exchange risk. In a recent
transaction, it issued a one-year $1.50 million CD at 4 percent and
is planning to fund a loan in British pounds at 6 percent for a 2
percent expected spread. The spot rate of U.S. dollars for British
pounds is $1.450/£1.
a. However, new information now indicates that the
British pound will appreciate such that the spot rate of U.S....

A bank has issued a six-month, $1.0 million negotiable CD with a
0.53 percent quoted annual interest rate (iCD, sp). a. Calculate
the bond equivalent yield and the EAR on the CD. b. How much will
the negotiable CD holder receive at maturity? c. Immediately after
the CD is issued, the secondary market price on the $1 million CD
falls to $998,900. Calculate the new secondary market quoted yield,
the bond equivalent yield, and the EAR on the $1.0 million...

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