Question

Answer the following questions regarding the balance sheet given below. Assume £1 = $1.25. a) Is this bank net short or net long? b) What is the net interest income if the value of the £ appreciates to $1.50? c) What is the net interest margin if the value of the £ depreciates to $1.10? Assets $300M in USD $700M in GBP Liabilities and Equity $800M in USD $200M in GBP Country US UK Deposit Rate 2% 14% Lending Rate 3% 5%

Answer 1

Given that. Assume £1-$1.25. 9) is this bank net short Cor) net long Gol) :- ) in USD Bank has more of depositors money than landing. It meang that bank assumes that the rates will increases and hence it is long on its position. Similarly, in GBP, it 199umes that rates will fall and hance it is short. As bank as net $400 mo more assets in GBP, it is net shot NII = (0.03* 300 +0.05* (C7106 / 1.25)*1.50)) -(800* 0.02 +((200/1.25)*1.50) *0.04)=(9+42)-(1679.6) = 44 - 24 = 25.4 O NIM = NII/ Ang, intarest caining asset = 25.4)(3007 (F00/1.25)*1. 10) = 25.4/916 = 2:47%.