Bank one issued $200 million worth of one-year CD liabilities in Brazilian reals at a rate of 6.50 percent. The exchange rate of U.S. dollars for Brazilian reals at the time of the transaction was $0.305/Br 1. a) Is Bank one exposed to an appreciation or depreciation of the U.S. dollar relative to the Brazilian real? b) What will be the percentage cost to Bank one on this CD if the dollar depreciates relative to the Brazilian real such that the exchange rate of U.S. dollars for Brazilian reals is $0.325/Br 1 at the end of the year?

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Bank one issued $200 million worth of one-year CD liabilities in Brazilian reals at a rate of 6.50 percent. The exchange rate of U.S. dollars for Brazilian reals at the time of the transaction was $0.305/Br 1.

a) Is Bank one exposed to an appreciation or depreciation of the U.S. dollar relative to the Brazilian real?

b) What will be the percentage cost to Bank one on this CD if the dollar depreciates relative to the Brazilian real such that the exchange rate of U.S. dollars for Brazilian reals is $0.325/Br 1 at the end of the year?

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