14-80 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.)

Question

Quizplus · Accepted Answer

If the exchange rate falls to US$0.765 per Canadian dollar, then the value of the 360 million Canadian dollars would be US$0.765 x 360,000,000 = US$275,400,000.

The bank's liability is 350 million Canadian dollars, which equals US$267,750,000 (350,000,000 x 0.765).

Therefore, the bank would have a loss of US$7,650,000 (US$275,400,000 - US$267,750,000) or US$7,000, after rounding to the nearest thousand.

14-80 What Is the End-Of-Year Profit or Loss to the Bank