. AU.S. bank can earn 6% on dollar loans or 8% on pound denominated loans to Britishconcerns. The bank currently has $500 million in dollar loans and British pound loansequivalent to $400 million. The loans are funded by dollar denominated CDs paying 4%.All loans and CDs are on single payment terms. The current spot rate for pounds isS1.8604 and the one year forward rate is $1.8405.TWhat is the bank's spread if they fullyhedge their exposure to pounds?

Answered: A U.S. bank can earn 6% on dollar loans…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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