Citigroup recently purchased $10,4 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The cur spot rate of U.S. dollars for euros is $1.104/€1. a. Is Citigroup 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? (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? (Round your answer to 3 decimal places. (e.g., 32.161)) a. b. C. Exposure Return if dollar appreciates Return if dollar depreciates % %

Citigroup recently purchased $10,4 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The cur spot rate of U.S. dollars for euros is $1.104/€1. a. Is Citigroup 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? (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? (Round your answer to 3 decimal places. (e.g., 32.161)) a. b. C. Exposure Return if dollar appreciates Return if dollar depreciates % %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

Citigroup recently purchased $10,4 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 Citigroup 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? (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? (Round your answer to 3 decimal places. (e.g., 32.161))
a.
b.
C.
Exposure
Return if dollar appreciates
Return if dollar depreciates
%
%

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