Question
A treasurer of an Australian bank issues a 1-year, AUD$1 million CD at 5 percent annual interest to finance a Canadian investment. The treasurer invests
A treasurer of an Australian bank issues a 1-year, AUD$1 million CD at 5 percent annual interest to finance a Canadian investment. The treasurer invests C $1.25 million in 2-year fixed-rate Canadian bonds selling at par and paying 8 percent annually. The treasurer expects to liquidate the position in 1 year upon maturity of the CD. Spot exchange rates are AUD $0.784 per Canadian dollar. What is the end-of-year profit or loss on the banks cash position if in one year the exchange rate falls to AUD$0.795/C $1? Assume there is no change in interest rates. (Choose the closest answer)
a.
Gain AUD$23,250
b.
Gain AUD$71,800
c.
Loss AUD$15,989
d.
Loss AUD$71,800
e.
Loss AUD$23,250
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