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Your U.S. bank issues a one-year U.S. CD at 5 percent annual interest to finance a C$1.274 million (Canadian dollar) investment in two-year, fixed rate
Your U.S. bank issues a one-year U.S. CD at 5 percent annual interest to finance a C$1.274 million (Canadian dollar) investment in two-year, fixed rate Canadian bonds selling at par and paying 7 percent annually. You expect to liquidate your position in one year. Currently, spot exchange rates are U.S. $0.78493 per Canadian dollar. If in one year there is no change to either interest rates or exchange rates, what is the end-of-year profit or loss for the bank?
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