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.What is the net interest income in dollars if the spot prices at the end of the year are $1.50/£ and €1.65/$?

Question

Quizplus · Accepted Answer

Spot prices at year-end of $1.50/£ and €1.65
 FNII = (£10,000,000 x 0.08) - (£8,000,000 x 0.08) + (€4,000,000 x 0.08)
 FNII = (£800,000 - £640,000) - €320,000
 FNII = £160,000 - €320,000
 With the indicated exchange rates, these values become,
 $NII = (£160,000 x $1.50/£) - (€320,000 x €1.65/$)
 $NII = $240,000 - 193,939.39
 $NII = $46,060.61.

Millon National Bank Has 10 Million British Pounds (£)In One-Year