Question- A 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.

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

2. What is the net interest income in dollars if the spot prices at the end of the year are $1.35/£ and €1.35/$ and the liabilities instead cost 7 percent instead of 8 percent?

3. What is the maximum that the € can appreciate and the bank still maintain a zero profit?

Additional information-

This given question belongs to Finance and it is about a Bank with £10 million in assets and £8 million in liabilities. Questions like net interest income for spot prices, the maximum amount of € appreciation and bank remains at zero profit have been discussed.