Monthly interest rate computation

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Suppose that a bank in the United States has $130 million in excess funds and needs an equivalent amount in euros. A bank in Germany has excess funds to the extent of this equivalent amount in euros and needs $130 million. The spot exchange rate SE = €1/1.30 per dollar in European terms. The US bank gives $130 million to the German bank and receives €100 million today.

Required:

If the annual simple interest rates are i = 6 percent in the United States and iE = 4 percent in Germany. After one month using a monthly interest rate computation how much will the German bank pays the American bank and vice versa.

Reference no: EM133059609

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