A U.S. bank issued a 30-day CD denominated in Canadian dollars (CA$) 5 million and converted...

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A U.S. bank issued a 30-day CD denominated in Canadian dollars (CA$) 5 million and converted the CAS to United States (US) dollars at a spot rate of $0.80/CA$. The bank engaged in a 30-day forward contract at a price of $0.79/CA$ to protect itself from foreign exchange risk as it anticipates that the exchange rate will change to $0.805/CA$ when the CD becomes repayable. If the bank's anticipation becomes a reality, what would be the foreign exchange profit or loss on an unhedged position? A U.S. bank issued a 30-day CD denominated in Canadian dollars (CA$) 5 million and converted the CAS to United States (US) dollars at a spot rate of $0.80/CA$. The bank engaged in a 30-day forward contract at a price of $0.79/CA$ to protect itself from foreign exchange risk as it anticipates that the exchange rate will change to $0.805/CA$ when the CD becomes repayable. If the bank's anticipation becomes a reality, what would be the foreign exchange profit or loss on an unhedged position?

Answer rating: 100% (QA)

Here we can see that the US bank has 30Day CD denominated in Canadian Dollars Here the home curr... View the full answer