Exchange rate to make the interest rate parity work

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1. A U.S. bank made converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.6 francs per dollar. The borrower agreed to repay the principal plus 4% interest in 1 year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.4 francs per dollar. What was the bank's rate of return?

2. A U.S. bank has £120 million in assets to corporate customers and has £70 million in liabilities it owes to customers with the same maturity. The bank has also sold £20 million pounds forward. The bank's net exposure is _____.

3. If the interest rate in the U.K. is 8%, the interest rate in the U.S. is 10%, and the spot exchange rate is $1.75/£, what must be the forward exchange rate to make the interest rate parity work?

Reference no: EM131881908

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