On November 2, 2018, Scannell, LTD., issued a $200 million, five-year maturity CDs (liability) denominated in Dollars at an interest rate of 2.25 percent. The CDs pay interest annually and the principal value of $200 million at maturity. Also on November 2, 2018, Scannell invested $150 million in a Rouble ()-denominated ten-year maturity loan with an annual interest rate of 11 percent and $50 million was invested in a ten-year maturity U.S. Treasury note with an interest rate of 3.24 percent. The Rouble denominated loan pays interest annually with the principal paid at maturity (remember this loan contract is denominated in Rouble ()). The ten-year U.S. Treasury note pays interest semiannually. The exchange rate on November 2, 2018 was 66.0468/$. The exchange rate on November 2, 2019 was 63.5401/$. Market interest rates in the U.S. for four-year maturity CDs on November 2, 2019 is 2.00 percent, the current market yield to maturity for an 9-year maturity U.S Treasuries is 1.70 percent, and the interest rate on an 9-year maturity Russian loan decreased from 11 percent on the loan when originated on November 2, 2018 to a market rate of 10 percent on November 2, 2019. Thus, values of both assets and liabilities increased since interest rates decreased in both Russia and the U.S. Note that the values of each of the balance sheet assets and liabilities change because of changes in market interest rates, changing time to maturities and changes in exchange rates. Fill in the table below for the balance sheets in both Dollars ($) and Roubles (). Since Scannell, LTD was exposed to both interest rate risk and exchange rate risk, what were the gains or losses during the previous year resulting from interest rate changes, maturity changes and the gains or losses due to exchange rate changes?

Solution matrix for problem (Market Values)

November 2, 2018 Date: 66.0468/$

Balance Sheet Dollar Values (in millions) Balance Sheet Rouble Values (in millions)

Rouble Dollar Rouble Dollar

Loan $150 CD $200 Loan _______ CD ________

U.S T-bill $50 U.S.T-bill _______

$200 $200 _______ ________

November 2, 2019 Date: 63.5401/$

Balance Sheet Dollar Values (in millions) Balance Sheet Rouble Values (in millions)

Rouble Dollar Rouble Dollar

Loan $______ CD $_____ Loan ________ CD ________

US Trea$_____ USTrea________

$______ $______ ________ ________

Gain or loss in ________ Gain or loss in __________

Russian Loan Price in Roubles on 11/2/19 with 9 YTM (10% market rate)

VB=____________1-1+______-9________+_____ (1.____)-9

V_B = = _______________

or __________/ 63.5401/$ = $___________

Scannell LTD 2.25% CD in $ on 11/2/19 with 4-YTM (2.00% market rate)

VCD=____________1-1+0.0200-40.0200+200.00(1.0200)-4

V_cd = = $___________

Or $____________* 63.5401/$ = __________

U.S Treasury 3.24% Bond in $ on 11/2/19 with 9-YTM (1.70% market rate)

VTB=______________1-1+___________-18___________+50.00(______________)-18

V_TB = = $________

Or $____________* 63.5401/$ = _______________