What should the spot rate of US dollars for BPs

Assignment Help Financial Management

Reference no: EM132044224

Sun Bank USA has purchased a 32 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars is $0.6250/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds is $1.6000/£1.

a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.5880/A$1 and $1.8500/£1, respectively? (Negative amount should be indicated by a minus sign.)

Net interest income $

b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $340,000 (disregarding any change in principal values)? (Round your answer to 4 decimal places. (e.g., 32.1616))

Spot rate of U.S. dollars $

If the interest rate in the United Kingdom is 6 percent, the interest rate in the United States is 7 percent, the spot exchange rate is $1.75/£1, and interest rate parity holds, what must be the one-year forward exchange rate? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))

One-year forward exchange rate $ per BP

Reference no: EM132044224

Questions Cloud

Ability to increase your firm average payment period : Your boss has informed you that the size of your holiday bonus depends on your ability to increase your firm’s average payment period.

How many tvs does best buy have on average in stock : How many TVs should Best Buy order at a time? How many TVs does Best Buy have on average in stock?

Should you stretch the accounts payable for this supplier : You are in charge of accounts payable decisions for a large retailer. Should you stretch the accounts payable for this supplier? Why or why not?

What is expected return on your portfolio : If you invest 35% of your holdings in a security with an expected return of 8%. what is the expected return on your portfolio?

What should the spot rate of US dollars for BPs : What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $340,000

What is stanley net foreign exchange bought : What is P.J. Chase Stanley’s net foreign assets? What is P.J. Chase Stanley’s net foreign exchange bought?

Calculate the WACC with tax rate : The debt of this company is currently 60% of the total assets, Calculate the WACC with a tax rate of 40%.

What is citibank net foreign assets : What is Citibank’s net foreign assets? What is Citibank’s net foreign exposure? What is Citibank’s net foreign exchange bought?

What is the equipment after-tax salvage value : Karsted can sell the used equipment today for $5.25 million, and its tax rate is 40%. What is the equipment's after-tax salvage value?

User Account

All Pages