(Answered) Question sun bank usa has purchased a 16 million one-year

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Question: Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars is $0.625/ A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds is $1.60/£1. ( LG 9-5

a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively?

b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000 (disregarding any change in principal values)?

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