A U.S.-based commercial bank has the following assets and liabilities. Assets $300 M 1-year U.S. loans...

 

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A U.S.-based commercial bank has the following assets and liabilities. Assets $300 M 1-year U.S. loans (made in U.S. dollars) $200 M equivalent 1-year German loans (made in euros) Liabilities $250 M 1-year U.S. CDs (made in dollars) $250 M 1-year German CDs (made in euros) Explain whether the bank's asset position is net long or net short in euros. b. Is the bank more likely to be concerned about the appreciation or depreciation of the euro relative to the U.S. dollar? Why? c. How could the bank adjust its assets and/or liabilities to hedge its foreign exchange rate risk? Be sure to explain how these adjustments will help the bank hedge its risk in your response. A U.S.-based commercial bank has the following assets and liabilities. Assets $300 M 1-year U.S. loans (made in U.S. dollars) $200 M equivalent 1-year German loans (made in euros) Liabilities $250 M 1-year U.S. CDs (made in dollars) $250 M 1-year German CDs (made in euros) Explain whether the bank's asset position is net long or net short in euros. b. Is the bank more likely to be concerned about the appreciation or depreciation of the euro relative to the U.S. dollar? Why? c. How could the bank adjust its assets and/or liabilities to hedge its foreign exchange rate risk? Be sure to explain how these adjustments will help the bank hedge its risk in your response.

Answer rating: 100% (QA)

a The banks asset position is net long in euros The bank has 200 million in eurodenominated assets and 250 million in eurodenominated liabilities This ... View the full answer