Question

Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New York. The current exchange rate is & pound;1.00 = $2.00. Show the correct balances in each account if a currency trader employed at Bank A buys £50,000 from a currency trader at Bank B for $100,000 using its correspondent relationship with Bank B.

Bank A (London) 000s
Assets									Liabilities and Equity
	OLD				NEW					OLD				NEW
£ deposit at B	£	500							B's Eurodollar deposit	$	850
$ deposit at B	$	1,000							B's £ deposit	£	100
Cash in the Vault	£	200							Other Liabilities	£	300
Other Assets	£	400							Owners Equity	£	775
Total Assets	£	1,600							Total Liabilities & Equity	£	1,600

Bank B (NYC) 000s
Assets									Liabilities and Equity
	OLD				NEW					OLD				NEW
Eurodollar Deposit at A	$	850							A's £ deposit	£	500
£ deposit at A	£	100							A's $ deposit	$	1,000
Cash in the Vault	$	200							Other Liabilities	$	200
Other Assets	$	1,000							Owners Equity	$	50
Total Assets	$	2,250							Total Liabilities & Equity	$	2,250

Answer 1

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