What is the net interest margin

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1. If the Swiss franc is expected to depreciate in the near future, would a U.S.-based Financial Institution in Lausanne prefer to be net long or net short in its asset positions? Why?

2. A U.S. insurance company borrows $1,000,000 to invest in a private placement of UK bonds. Each bond pays £300 in interest per year for 20 years.

  • If the current exchange rate is £0.874/$, what is the nature of the US insurance company's exchange rate risk (net long or net short)?
  • What type of exchange rate movement in the £ (appreciate or depreciate) will cause the insurance company to lose money?

3. Answer the following questions regarding the balance sheet given below. Assume £1 = $1.30.

a) Is this bank net short or net long?

b) What is the net interest income (NII) if the value of the £ appreciates to $1.50?

c) What is the net interest margin (NIM) if the value of the £ depreciates to $1.10?

Reference no: EM132807346

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