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 $0.757/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 $1.320/£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 $0.715/A$1 and $1.520/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers 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 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 $200,000 (disregarding any change in principal values)? (Round your answer to 5 decimal places. (e.g., 32.16161)) a. Net interest income b. Spot rate of U.S. dollars

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 $0.757/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 $1.320/£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 $0.715/A$1 and $1.520/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers 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 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 $200,000 (disregarding any change in principal values)? (Round your answer to 5 decimal places. (e.g., 32.16161)) a. Net interest income b. Spot rate of U.S. dollars

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 1ST

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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 $0.757/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 $1.320/£1. 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 $0.715/A$1 and $1.520/£1, respectively?
Sun Bank USA has purchased a 24 million one-year Australian dollar loan that pays 15 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 13 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 $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate 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 $180,000 (disregarding any change in principal values)?…
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 $0.757/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%. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. What should the spot rate 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 $200,000?
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 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 $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate 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 $200,000 (disregarding any change in principal values)?…
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Consider a U.S.-based company that exports goods to Switzerland. The U.S. company expects to receive a payment of 50,000 Swiss Francs (CHF) on a shipment of goods in 6 months' time. The U.S. interest rate is 2% p.a., and the Swiss interest rate is 4% p.a. Assume that the current spot rate is CHF0.96/USD. Which of the following statements is correct: The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to sell Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to sell Swiss francs forward
OneUSF, a U.S. MNC based in Florida, is considering making a fixed direct investment in Italy. The Italian government has offered OneUSF a concessionary loan of €2,700,000 at a rate of 3 percent per annum. The current spot rate is $1.31/€1.00 and the expected inflation rate is 2.5% in the U.S. and 2% in Italy. The normal borrowing rate is 6 percent in dollars and 5.5 percent in euros. The loan schedule calls for the principal to be repaid in three equal annual installments. The marginal corporate tax rate in Italy and the U.S. is 35%. What is the present value of the benefit of the concessionary loan? W $143.174 $984,145 $111,756 None of the above with the $10,000 of the correct answer $1,131,289
OneUSF, a U.S. MNC based in Florida, is considering making a fixed direct investment in Italy. The Italian government has offered OneUSF a concessionary loan of €2,700,000 at a rate of 3 percent per annum. The current spot rate is $1.36/€1.00 and the expected inflation rate is 4% in the U.S. and 2% in Italy. The normal borrowing rate is 7 percent in dollars and 6 percent in euros. The loan schedule calls for the principal to be repaid in three equal annual installments. The marginal corporate tax rate in Italy and the U.S. is 35%. What is the present value of the benefit of the concessionary loan? (Please keep 2 digits in decimals to get the right answer) $117,160 None of the above with the $10,000 of the correct answer $51,360 $1,165,209 $1,310,116
Pfizer, an American corporation, just signed a contract to sell laboratory equipment for COVID -19 research to Bayer AG- a German corporation. Bayer AG will be billed €10 million, which is receivable in 3 months. The current spot exchange rate is $1.1290/€ and the 3-month forward rate is $1.1945/€. The U.S. annual deposit rate is 4.0% and annual U.S. borrowing rate is 8%. The annual borrowing rate at the Dresden Bank (Germany) is 8.0%. Pfizer’s cost of capital is 10% per annum. Put options on Euro are available at strike rate of $1.1960/€ and premium of 1.0%. Call options on Euro are available at strike rate of $1.1970/€ and premium of 1.5%. Pfizer is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. Outline how you would deal with transaction exposure. Calculate and discuss different hedging alternatives. Which alternative would you recommend? Why?
Below is the information regarding U.S. and Canadian annualized interest rates: Currency Lending Rate Borrowing Rate U.S Dollar ($) 6.73% 7.20% Euro (€) 6.80% 7.28% Note: Spot rate of Euro is $1.13 An international bank can borrow either 20 million U.S. dollars or 20 million euro. The bank expects the spot rate of the euro is $1.10 in 90 days, which is equal to ______ profit. A. $583,800 B. $588,200 C. $584,245 D. $579,845