A financial institution has borrowed a one-year $20 million Eurodollar deposit at an annual interest rate of 1.5 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 2.5 percent after converting them at the current spot rate of €1.22/$. Both interest and principal are paid at the end of the year. What is the spread earned by the bank at the end of the year if the exchange rate remains at €1.22/$? a) 1.50 percent b) 2.50 percent c) 0.50 percent d) 1 percent e) 2.00 percent
A financial institution has borrowed a one-year $20 million Eurodollar deposit at an annual interest rate of 1.5 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 2.5 percent after converting them at the current spot rate of €1.22/$. Both interest and principal are paid at the end of the year. What is the spread earned by the bank at the end of the year if the exchange rate remains at €1.22/$? a) 1.50 percent b) 2.50 percent c) 0.50 percent d) 1 percent e) 2.00 percent
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Q6. A financial institution has borrowed a one-year $20 million Eurodollar deposit at an annual interest rate of 1.5 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 2.5 percent after converting them at the current spot rate of €1.22/$. Both interest and principal are paid at the end of the year. What is the spread earned by the bank at the end of the year if the exchange rate remains at €1.22/$?
a) 1.50 percent
b) 2.50 percent
c) 0.50 percent
d) 1 percent
e) 2.00 percent
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