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What is the effect in dollars on the net interest income

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Question - Assume that a bank has assets located in the EU worth 101 million euros, on which it earns an average of 9% per year. The bank has 76 million Euros in liabilities on which earns an average of 5% per year. The spot exchange rate is 0.76 euros/$.

a. If the exchange rate at the end of the year is 0.79euros/$, will the dollar have appreciated or depreciated against the euro?

b. Given the change in the exchange rate, what is the effect in dollars on the net interest income from foreign assets and liabilities?

Reference no: EM131922697

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