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)? (Round your answer to 5 decimal places. (e.g., 32.16161)) a. b. Net interest income Spot rate of U.S. dollars $ (13,020) $ 1.66336
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)? (Round your answer to 5 decimal places. (e.g., 32.16161)) a. b. Net interest income Spot rate of U.S. dollars $ (13,020) $ 1.66336
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 1ST
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you