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Question
An FI has a 1-year 8-percent US $160 million loan financed with a 1-year 7-percent UK ≤100 million CD. The current exchange rate is $1.60/≤.
What is the cash spread earned by the FI if at the end of the year the ≤ is trading at $1.63/≤ in the cash market? Again adjust for all exchange rate changes.
A. $1,610,000 gain.
B. $1,610,000 loss.
C. $2,670,000 loss.
D. $2,670,000 gain.
E. $2,390,000 loss.
Answer
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