In: Finance
Six months ago, Qualitybank issued a $132 million, one-year-maturity CD, denominated in British pounds (Euro CD). On the same date, $76 million was invested in a £-denominated loan and $56 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:
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2. 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)) |
British loan principal in pounds | £ |
British loan principal in dollars | $ |
3. 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)) |
U.S. Treasury bill in pounds | £ |
U.S. Treasury bill in dollars | $ |
4. 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)) |
Qualitybank’s (Click to select)profitloss in pounds | £ |
Qualitybank’s (Click to select)profitloss in dollars | $ |
Question 1
Euro CD principal in pounds = 132*1.5382 = 203.04 millions
Euro CD principal in dollars = 203.04/1.1905 = 170.55 millions
Question 2
British Loan principal in pounds = 76*1.5382 = 116.90 millions
British Loan principal in dollars = 116.9 / 1.1905 = 98.20 millions
Question 3
Value of US Treasury in dollars = 56 millions
Value of US Treasury in pounds = 56*1.1905 = 66.67 millions
Question 4
Dollar Profits
CD raised in dollars = 132
Value of CD now in dollars = 170.55
Loss in CD = 170.55-132 = 38.55 millions
Profit/Loss on US Treasury = 0 (since it was in USD only)
Profit/Loss on British Loan = 98.2-76 = 22.2 millions profits
Hence, net loss = 38.55 - 22.2 = 16.3522 millions dollars
Pounds Profit/Loss
Loss/Gain on CDs = 0 (Since they were raised in pounds and settlement is also in pounds)
Loss/Gain on Treasury bonds = (56*1.5382) - 66.67 = 19.4712 millions loss
Loss/gain on British Loans = 0 (Since the investment was in pounds)
Hence, total loss = 19.4712 millions pounds