Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. Exposure b. C. Return if dollar appreciates Return if dollar depreciates Appreciation 10.440 % 32.440 %
Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. Exposure b. C. Return if dollar appreciates Return if dollar depreciates Appreciation 10.440 % 32.440 %
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 1ST
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Question
![Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The
current spot rate of U.S. dollars for euros is $1.104/€1.
a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro?
b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S.
dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3
decimal places. (e.g., 32.161))
c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S.
dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3
decimal places. (e.g., 32.161))
a. Exposure
b.
Return if dollar appreciates
C. Return if dollar depreciates
Appreciation
10.440 %
32.440 %](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F11162a49-9870-4a2a-95b9-678f50a8d88b%2Fca427872-4fc6-4e58-bd0a-323e69ca6ab7%2Fixan6k8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The
current spot rate of U.S. dollars for euros is $1.104/€1.
a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro?
b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S.
dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3
decimal places. (e.g., 32.161))
c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S.
dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3
decimal places. (e.g., 32.161))
a. Exposure
b.
Return if dollar appreciates
C. Return if dollar depreciates
Appreciation
10.440 %
32.440 %
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