Reference no: EM132661372
Suppose that a U.S. FI has the following assets and liabilities:
Assets
$10 million cash (in dollars)
$100 million U.S. loans (one year) (in dollars) (12%)
$100 million equivalent UK loans (one year) (loans made in pounds) (10%)
Liabilities
$200 million U.S. CDs (one year) (in dollars) (5%)
$10 million borrowed funds (in dollars) (6%)
The current spot exchange rate is $1.5/£
Question a: If the spot foreign exchange rate falls to $1.55/£1 over the year, calculate
a1. the dollar proceeds from the UK loan at the end of the year
a2. the return on the UK loan
a3. the return on the loan portfolio
a4. the net interest income for the FI at the end of year
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