What is the deposit amount in euros

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Reference no: EM132047646

1. US Bank has purchased a 7 million one-year Canadian dollar loan that pays 8.5% interest annually. The spot rate of U.S. dollars for Canadian dollars is 0.70. It has funded this loan by accepting a Euro-denominated deposit for the equivalent amount and maturity at an annual rate of 7%. The current spot rate of U.S. dollars for Euros is 1.25.

-What is the loan amount in dollars?

-What is the deposit amount in Euros?

-What is the interest income earned in US dollars on this one-year transaction if the spot rate of U.S. dollars for Canadian dollars and U.S. dollars for Euros at the end of the year are 0.67 and 1.30, respectively?

-What is the interest expense in dollars?

2. If interest parity holds and the interest rate in the U.K. is 6 percent, the interest rate in the US is 4.5 percent, and the one-year forward exchange rate is 1.75 dollars per British pound, what must be the spot exchange rate?

- Is the U.S. dollar expected to appreciate or depreciate against the British pound?

Reference no: EM132047646

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