A Swiss bank converted 1 million Swiss francs to euros to make a euro loan to a customer when the exchange rate was 1.85 francs per euro. The borrower agreed to repay the principle plus 3.75% interest in 1 year. The borrower repaid euros at loan maturity and when the loan was repaid the exchange rate was 1.98 francs per dollar. What was the bank's franc rate of return?

Question

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The bank's franc rate of return is 11.04%. The bank converted 1 million Swiss francs to euros at a rate of 1.85 francs per euro, so it received 1,000,000/1.85 = 539,951.61 euros. The borrower agreed to repay the principle plus 3.75% interest in 1 year, so the borrower repaid 539,951.61 * 1.0375 = 560,647.62 euros. The bank converted the euros back to Swiss francs at a rate of 1.98 francs per euro, so it received 560,647.62 * 1.98 = 1,110,411.49 Swiss francs. The bank's franc rate of return is (1,110,411.49 - 1,000,000)/1,000,000 = 11.04%.

A Swiss Bank Converted 1 Million Swiss Francs to Euros