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Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank...

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

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