A treasurer of an Australian bank issues a 1-year, AUD$1 million CD at 2.7 percent annual interest to finance a Canadian investment. The treasurer invests C $1.307 million in 2-year fixed-rate Canadian bonds selling at par and paying 5.3 percent annually. The treasurer expects to liquidate the position in 1 year upon maturity of the CD. Spot exchange rates are AUD $0.765 per Canadian dollar. What is the end-of-year profit or loss on the bank's cash position if in one year the exchange rate falls to AUD$0.819/C $1?

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An Australian bank treasurer issues a 1year AUD1 million certificate of deposit CD at an annual inte... View the full answer