An FI Has Purchased (Borrowed) a One-Year $10 Million Eurodollar

question 94

Multiple Choice

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent.It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 6.5 percent after converting them at the current spot rate of €1.75/$.Both interest and principal are paid at the end of the year. What is the spread earned by the bank if the end-of-year exchange rate is €1.77/$?

• A)-1.00 percent.
• B)-0.70 percent.
• C)-0.25 percent.
• D)0.00 percent.
• E)0.20 percent.