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Suppose a U.S. commercial bank has made a loan to a company in the Eurozone. The loan is for 200 million euros. Further suppose that this bank has 300 million euros in deposits from the Eurozone. At the this loan was made, the euro per U.S. dollar exchamge rate was E1.50/$. However, since then the value of the euro relative to the U.S.dollar has changed and the new euro per U.S. dollar exchange rate is now E1.30/$. A. Has the euro appreciated or depreciated relative to the U.S. dollar? Explain carefully and fully. B. Illustrate and explain carefully and fully what has happened to this bank's equity position as a result of this change in the euro per U.S.dollar exchange rate.

Suppose a U.S. commercial bank has made a loan to a company in the Eurozone. The loan is for 200 million euros. Further suppose that this bank has 300 million euros in deposits from the Eurozone. At the this loan was made, the euro per U.S. dollar exchamge rate was E1.50/$. However, since then the value of the euro relative to the U.S.dollar has changed and the new euro per U.S. dollar exchange rate is now E1.30/$. A. Has the euro appreciated or depreciated relative to the U.S. dollar? Explain carefully and fully. B. Illustrate and explain carefully and fully what has happened to this bank's equity position as a result of this change in the euro per U.S.dollar exchange rate.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Suppose a U.S. commercial bank has made a loan to a company in the Eurozone. The loan is for 200 million euros. Further suppose that this bank has 300 million euros in deposits from the Eurozone. At the this loan was made, the euro per U.S. dollar exchamge rate was E1.50/$. However, since then the value of the euro relative to the U.S.dollar has changed and the new euro per U.S. dollar exchange rate is now E1.30/$. A. Has the euro appreciated or depreciated relative to the U.S. dollar? Explain carefully and fully. B. Illustrate and explain carefully and fully what has happened to this bank's equity position as a result of this change in the euro per U.S.dollar exchange rate.
Transcribed Image Text:Suppose a U.S. commercial bank has made a loan to a company in the Eurozone. The loan is for 200 million euros. Further suppose that this bank has 300 million euros in deposits from the Eurozone. At the this loan was made, the euro per U.S. dollar exchamge rate was E1.50/$. However, since then the value of the euro relative to the U.S.dollar has changed and the new euro per U.S. dollar exchange rate is now E1.30/$. A. Has the euro appreciated or depreciated relative to the U.S. dollar? Explain carefully and fully. B. Illustrate and explain carefully and fully what has happened to this bank's equity position as a result of this change in the euro per U.S.dollar exchange rate.
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