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What is the fi net exposure in pounds

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Reference no: EM132804608

Suppose that a U.S. FI has the following assets and liabilities:

Assets

$10 million cash (in dollars)

$100 million U.S. loans (one year) (in dollars) (12%)

$100 million equivalent UK loans (one year) (loans made in pounds) (10%)

Liabilities

$200 million U.S. CDs (one year) (in dollars) (5%)

$10 million borrowed funds (in dollars) (6%)

The current spot exchange rate is $1.5/£

Required:

Problem a. What is the FI's net exposure in pounds?

Problem b. Is this bank exposed to U.K. pound appreciation or depreciation?

Reference no: EM132804608

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