A bank in Venezuela borrows $5 million in U.S. dollars, promising to repay the l

Question

A bank in Venezuela borrows $5 million in U.S. dollars, promising to repay the loan plus 6% interest at the end of the year. The currency in Venezuela is the “bolivar.” The bank converts the dollars to bolivars at an exchange rate of 1600 bolivars to the dollar, and loans them out to a borrower who promises to repay them at the end of the year, plus 8% interest.

Figure out how much money the bank makes on the loan if the exchange rate stays fixed for the year.

What about if the exchange rate starts at 1600 bolivars to the dollar but rises to 1800 during the year?

What about if the exchange rate changes to 1500 bolivars to the dollar during the year?

Explanation / Answer

Borrowed amount= $5million

Exchange rate is 1600 bolivers to the doller

Total amount=8000,000,000bolivers

If the exchang erate is fixed bank makes on the loan=8000,000,000bolivers+interest a@8%

a.If the exchang erate is fixed bank makes on the loan=8000,000,000+640000000=8640000000bolivers

b.if the exchang erate raises to 1800 then total amount=9000000000+720000000=9720000000bolivers

c.if the exchang erate changes to 1500 then total amount=7500000000600000000=8100000000bolivers

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