Question
Question 8 A U.S. bank issues a 1-year, $1 million U.S. CD at 5 percent annual interest to finance a C $1.274 million investment in
Question 8
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A U.S. bank issues a 1-year, $1 million U.S. CD at 5 percent annual interest to finance a C $1.274 million investment in 2-year fixed-rate Canadian bonds selling at par and paying 7 percent annually. You expect to liquidate your position in 1 year upon maturity of the CD. Spot exchange rates are US $0.78493 per Canadian dollar.
Your position is exposed to:
A. interest rate risk only.
B. credit risk only.
C.exchange rate risk only.
D interest rate and exchange rate risk only.
E.interest rate risk, exchange rate risk, and credit risk.
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International Finance The Markets And Financial Management Of Multinational Business
Authors: Maurice D. Levi
3rd Edition
0070376875, 978-0070376878
