Question

Suppose an Italian bank has short-term borrowings of 400 million euro and 100 million U.S. dollars and made long term loans of 300 million euro and 250 million U.S. dollars. The euro-dollar exchange rate is initially $1.50 per euro.
a. Ignoring other assets and liabilities, place each item on the appropriate side of the bank’s balance sheet.
b. List the risks that this bank faces.
c. If the euro-dollar exchange rate moved to $1.60 per euro, would the bank gain or lose? Provide calculations to support your answer.



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  • CreatedOctober 02, 2014
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