A U.S. bank has £900 million in loans it has made to corporate customers and it has £750 million in deposits when the exchange rate is £1 = $1.98. The bank will have a net foreign exchange loss on these accounts if the exchange rate moves to £1 = $1.95.
Added by Tiffany W.
Step 1
S. dollars at the initial exchange rate of £1 = $1.98. Value of loans = £900 million * $1.98/£1 = $1,782 million. Show more…
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Company XYZ has a receivable worth £1,500,000 from a British company that is due in three months. Additional information is as follows: British Pound Spot Rate: $1.5218 - $1.5241; British Pound 3-month term exchange rate: $1.7392-$1.7418: 3-month term deposit interest rate in the US is 1.5% and 3-month term loan interest rate in the US is 3%; The 3-month deposit interest rate in the UK is 4.5% and the 3-month loan interest rate in the UK is 6%: What would be the approximate value of the receivables in US dollars if the company hedged?
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