2950

Assume that a bank has assets located in London worth £100 million on which it earns an average of 8% per year. The bank has £150 million in liabilities on which it pays an average of 6% per year. The current spot rate is £1 = $1.25 of the exchange rate at the end of the year is £1 = $1.50, will the dollar have appreciated or depreciated against the pound? given the change in the exchange rate, what is the effect in dollars on the net interest income from the foreign assets and liabilities