What is the effect of the exchange rate

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Assume that the bank has asset located in london that are worth £150 million on which it earns an average of 8 % per year. The bank has £100 million in liabilities on which it pays an average of 6% per year. The current spot exchange rate is £ 1.50/$.

A. If the exchange rate at the end of the year is £ 2.00/$, will the dollar have appreciated or depreciated against the pound.

B. Given the change in the exchange rate, what is the effect in dollars on the net interest income from the foreign asset and liabilities? Note The net interest income is interest income minus expense.

C. What is the effect of the exchange rate on the value of assets and liabilities in dollars?

Reference no: EM132698068

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