What is the end-of-year profit or loss to the bank if in one year the exchange rate falls to US $0.765 per Canadian dollar? (Assume that there is no change in interest rates.)
A)Loss of US $75,000.
B)Profit of C $274,000.
C)Loss of US $7,000.
D)Profit of C $9,000.
E)Loss of US $5,000.

Question

Quizplus · Accepted Answer

Using the same formula:

Profit/Loss = (Ending Value - Beginning Value) / Beginning Value

Profit/Loss = (0.765 - 0.78) / 0.78 = -0.015 / 0.78 = -0.019

The bank will experience a loss of 1.9% on its initial investment of US $400,000.

Profit/Loss in US dollars = (Profit/Loss in percentage) x Initial Investment in US dollars

Profit/Loss in US dollars = (-0.019) x $400,000 = -$7,600

Therefore, the bank will experience a loss of US $7,000 (rounded to the nearest thousand).

What Is the End-Of-Year Profit or Loss to the Bank