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Your U . S . bank issues a one - year U . S . CD at 2 . 4 percent annual interest to finance
Your US bank issues a oneyear US CD at percent annual interest to finance a C $ million Canadian dollar investment in twoyear, fixed rate Canadian bonds selling at par and paying percent annually. You expect to liquidate your position in one year. Currently, spot exchange rates are US $ per Canadian dollar. If in one year there is no change to either interest rates or exchange rates, what is the endofyear profit or loss for the bank? Hint: Annual interest is paid on both the Canadian bonds and the CD on the date of liquidation in exactly one year.
a
Profit of CA$
b
Loss of CA$
c
Profit of CA$
d
Profit of US$
e
Profit of US$
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