Question: Your U . S . bank issues a one - year U . S . CD at 2 . 4 percent annual interest to finance

Your U.S. bank issues a one-year U.S. CD at 2.4 percent annual interest to finance a C $1.2862 million (Canadian dollar) investment in two-year, fixed rate Canadian bonds selling at par and paying 5.9 percent annually. You expect to liquidate your position in one year. Currently, spot exchange rates are US $0.7775 per Canadian dollar. If in one year there is no change to either interest rates or exchange rates, what is the end-of-year profit or loss for the bank? (Hint: Annual interest is paid on both the Canadian bonds and the CD on the date of liquidation in exactly one year.)
a.
Profit of CA$27212.50
b.
Loss of CA$28573.13
c.
Profit of CA$35000.00
d.
Profit of US$27212.50
e.
Profit of US$35000.00

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!