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What is the net interest income earned

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Question - Sun Bank of Byron Bay purchased a 16 million euro one-year loan that pays 12 percent interest annually. The spot rate for euro is €1.60/$1. Sun Bank has funded this loan by accepting a UK pound- (GBP) denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of the UK pound is $1.60/£1.

a) What is the net interest income earned in dollars on this one-year transaction if the spot rates at the end of the year are €1.70/$1 and $1.85/£1?

b) What should be the GBP to AUD spot rate in order for the bank to earn a net interest margin of 4 percent?

Reference no: EM133019988

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