Question

1. The following are the foreign currency positions of an FI, expressed in the foreign currency:

Currency                                 Assets                                     Liabilities

Macanese Pataca                     74,394                                     23,758

British Pound                        730,255                                 1,813,666

Danish Krone                     1,200,532                                 1,730,189

The beginning spot exchange rates are: $1 = 8.08 patacas                    $1 = 0.77 pound sterling               $1 = 6.46 krones

The ending spot exchange rates are:       $1 = 7.65 patacas                    $1 = 0.63 pound sterling               $1 = 7.16 krones

e. What is the $ gain or loss from the British currency?

f. What is the $ gain or loss from the Danish currency?

g. What is the total $ gain or loss from this FI’s foreign exposure?

Answer 1

Answer:

e) What is the $ gain or loss from the British currency?

Profit = Assets - Liabilities

Assets : 7,30,255

Liabilities: 18,13,411

As per Profit Formula= 7,30,255  - 18,13,666 = - 10,83,411 British Pound

At the end Spot Exchange rate

1 $ = 0.63 Pound

1 Pound = 1 / 0.63 $

So for 10,83,411 Pounds = $ 17,19,700

Loss in $ from British currency is: $17,19,700

f. What is the $ gain or loss from the Danish currency?

Profit = Assets - Liabilities

Assets = 12,00,532

Liabilities = 17,30,189

As per Profit formula = 12,00,532 - 17,30,189 = - 5,29,657 Krones

At the end Spot Exchange rate:

$1 = 7.16 Krones

1 Krones = 1/7.16 $

So for 5,29,657 krones = $73,974.44

Hence Loss in $ from Danish currency is: $ 73,974.44

g. What is the total $ gain or loss from this FI’s foreign exposure?

Profit of Macanese Pataca = Assets - Liabilities

Assets = 74,394

Liabilities = 23758

Profit = 74,394 - 23,758 = 50,636

Now The ending spot exchange rates are:

1 $ = 7.65 patacas

1 patacas = 1/7.65 $

So 50,636 patacas = $ 6,619.08

Total Profit / Loss = Profit $6619.08 - Loss $1719700 - Loss $ 73974.44 = $-17,87,055.36