6/ Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually The spot rate of US. dollars for Australian dollars is $0.625 /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 US. dollars for British pounds is $1 60/?l .

?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 $0.588/A$I and $1.848/?1, respectively?

?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 $200,000 (disregarding any change in principal values)?

9/ Jones Bank has been borrowing in the U.S. markets a lending abroad, thereby incurring foreign exchange risk. In a a recent transaction, it issued a one-year $5 million CD 4 percent and is planning to fund a loan in yen at 6 percent for a 2 percent expected spread. The spot rate of U.S. dollars for Japanese yen is $0.001172/?1.

a. However, new information now indicates will appreciate such that the spot rate of U.S. dollars for yen is 0.001155/?1 by year-end. What should the bank charge on the loan in order to maintain the 2 percent spread?

b. The bank has an opportunity to hedge using one-year forward contracts at 0.001165 U.S. dollars for yen. What is the spread if the bank hedges its forward foreign exchange exposure?

c. How should the loan rates be increased to maintain the 2 percent spread if the bank intends to hedge its exposure using the forward rates?

6/ Sun Bank USA has purchased a 16 million one?year
Australian dollar loan that pays 12 percent interest annually The
spot rate of US. dollars for Australian dollars is $0.625 /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 US. dollars
for British pounds is $1 60/?l .
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
$0.588/A$I and $1.848/?1, respectively?
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 $200,000 (disregarding any change in principal
values)?
9/ Jones Bank has been borrowing in the U.S. markets a lending
abroad, thereby incurring foreign exchange risk. In a a recent
transaction, it issued a one?year $5 million CD 4 percent and is
planning to fund a loan in yen at 6 percent for a 2 percent
expected spread. The spot rate of U.S. dollars for Japanese yen
is $0.001172/?1.
a. However, new information now indicates will appreciate such
that the spot rate of U.S. dollars for yen is 0.001155/?1 by year?
end. What should the bank charge on the loan in order to
maintain the 2 percent spread?
b. The bank has an opportunity to hedge using one?year forward
contracts at 0.001165 U.S. dollars for yen. What is the spread if
the bank hedges its forward foreign exchange exposure?
c. How should the loan rates be increased to maintain the 2
percent spread if the bank intends to hedge its exposure using
the forward rates?