Question: Please answer b and c Tute 9 :Foreign Exchange Risk 4. FIM bank of Adelaide purchased a 32 million euro one-year loan that pays 10

Please answer b and c Tute 9 :Foreign Exchange Risk 4.

Please answer b and c

Tute 9 :Foreign Exchange Risk 4. FIM bank of Adelaide purchased a 32 million euro one-year loan that pays 10 per cent interest annually. The spot rate for euro is 1.50/$1. FIM Bank has funded this loan by accepting a UK pound-(GBP) denominated deposit for the equivalent amount and maturity at an annual rate of 8 per cent. The current spot rate of the UK pound is $1.50/l. (1.5 marks) a) What is the net interest income earned in dollars on this one-year transaction if the spot rates at the end of the year are 1.60/$1 and $1.75/1? b) What should be the GBP to AUD spot rate in order for the bank to earn a net interest margin of 3 per cent? c) Does your answer to part (b) imply that the dollar should appreciate or depreciate against the pound

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