Essay
Consider the balance sheets of Bank A and Bank B.Bank A is in Milan,Bank B is in New York.The current exchange rate is €1.00 = $1.25.Show the correct balances in each account if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $125,000 using its correspondent relationship with Bank B.
| Assets | Liabilities and Equity | |||||
|---|---|---|---|---|---|---|
| OLD | NEW | OLD | NEW | |||
| €deposit at B | €500 | B's Eurodollar deposit | $ 900 | |||
| $ deposit at B | $ 800 | B's €deposit | €220 | |||
| Cash in the Vault | €200 | €200 | Other Liabilities | €300 | €300 | |
| Other Assets | €400 | €400 | Owners Equity | €500 | €500 | |
| ----- | ------ | ------- | ------- | |||
| Total Assets @ €1.00 = $1.25 | €1,740 | Total Liabilities & Equity @ €1.00 = $1.25 | €1,740 | |||
| Assets | Liabilities and Equity | |||||
|---|---|---|---|---|---|---|
| OLD | NEW | OLD | NEW | |||
| Eurodollar Deposit at A | €900 | A's euro deposit | $ 500 | |||
| $ deposit at A | $ 220 | A's $ deposit | €800 | |||
| Cash in the Vault | €200 | €200 | Other Liabilities | €200 | €200 | |
| Other Assets | €600 | €600 | Owners Equity | €350 | €350 | |
| ----- | ------ | ------- | ------- | |||
| Total Assets @ €1.00 = $1.25 | €1,975 | Total Liabilities & Equity @ €1.00 = $1.25 | €1,975 | |||
Correct Answer:
Verified
Related Questions
Q90: Nondollar currency transactions
A)are priced by looking at
Q91: Consider the balance sheets of Bank A
Q92: Consider the following spot and forward rate
Q93:
