Six months ago, Qualitybank issued a $106 million, one-year-maturity CD, denomin

Question

Six months ago, Qualitybank issued a $106 million, one-year-maturity CD, denominated in British pounds (Euro CD). On the same date, $63 million was invested in a £-denominated loan and $43 million in a U.S. Treasury bill. The exchange rate on this date was £1.5382 for $1. If you assume no repayment of principal and if today’s exchange rate is £1.1905 for $1

a. What is the current value of the Euro CD principal in dollars and pounds? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 2 decimal places. (e.g., 32.16))

b. What is the current value of the British loan principal in dollars and pounds? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 2 decimal places. (e.g., 32.16))

c. What is the current value of the U.S. Treasury bill in dollars and pounds? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 2 decimal places. (e.g., 32.16))

d. What is Qualitybank’s profit/loss from this transaction in dollars and pounds? (Input all amounts as positive values. Do not round intermediate calculations. Enter your answers in millions. Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

a) Current Value of the EURO CDPrincipal in dollars and pounds

Current Exchange Rate is One $ = 1.1905 £

EURO CD= $ 106 Million

Current Value of EURO CD in dollars and pounds= 106 x 1.1905= £ 126.19 million

Therefore Euro CD IN dollars and pounds is $ 126 million and 19 pounds

b)

Current Value of the BRITISH LOAN Principal in dollars and pounds

Current Exchange Rate is One $ = 1.1905 £

BRITISH LOAN= $ 63 Million

Current Value of BRITISH LOAN in dollars and pounds= 63 x 1.1905= £ 75.00 million

Therefore BRITISH LOAN IN dollars and pounds is $ 75 million .

C)

Current Value of the U S Treasury BIll Principal in dollars and pounds

Current Exchange Rate is One $ = 1.1905 £

U S Treasury BILL= $ 43 Million

Current Value of U S Treasury Bill in dollars and pounds= 43 x 1.1905= £ 51.19 million

Therefore U S Treasury BIll IN dollars and pounds is $ 51 million and 19 pounds.

d)Quality Bank's Profit and Loss in dollars and pounds

EURO CD

0.3477

Therefore Quality Bank's Profit in EURO CD is $ 36 Million and 86 pounds

In BRITISH Loan Loss is $ 21 Million and 91 pounds.

In U S Treasury Bill Loss is $ 14 Million and 95 Pounds.

Particulars $ Old Rate£ NEW Rate Difference Amount(Difference x $)

EURO CD

106 1.5382 1.1905 0.3477 36.86 (Profit) BRITISH Loan 63 1.5382 1.1905

0.3477

21.91(Loss) U S Treasury BIll 43 1.5382 1.1905 0.3477 14.95(Loss)

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