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Question
Millon National Bank has 10 million British pounds in one-year assets and 8 million in one-year liabilities. In addition, it has one-year liabilities of 4 million euros. Assets are earning 8 percent and both liabilities are being paid at a rate of 8 percent. All interest and principal will be paid at the end of the year.
If the year-end spot exchange rate for the British pound is $1.50/ and the liabilities pay 8 percent, what is the maximum that the can appreciate and the bank still maintain a zero profit?
A. €1.30/$.
B. €1.33/$.
C. €1.35/$.
D. €1.50/$.
E. €1.60/$.
Answer
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