Smart Banking Corp. can borrow $5 million at 6 percent annualized. It can use the proceeds to invest in Canadian dollars at 9 percent annualized over a 6-day period. The Canadian dollar is worth $.95 and is expected to be worth $.94 in 6 days. Based on this information, should Smart Banking Corp. borrow U.S. dollars and invest in Canadian dollars? What would be the gain or loss in U.S. dollars?
Smart Banking Corp. can borrow $5 million at 6 percent annualized. It can use the proceeds to invest in Canadian dollars at 9 percent annualized over a 6-day period. The Canadian dollar is worth $.95 and is expected to be worth $.94 in 6 days. Based on this information, should Smart Banking Corp. borrow U.S. dollars and invest in Canadian dollars? What would be the gain or loss in U.S. dollars?
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 1ST
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Smart Banking Corp. can borrow $5 million at 6 percent annualized. It can use the
proceeds to invest in Canadian dollars at 9 percent annualized over a 6-day period. The
Canadian dollar is worth $.95 and is expected to be worth $.94 in 6 days. Based on this
information, should Smart Banking Corp. borrow U.S. dollars and invest in Canadian
dollars? What would be the gain or loss in U.S. dollars?
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