How the houston bank could lose on the transaction

Reference no: EM131792690

Question: You are the vice-president of finance for Exploratory Resources, headquartered in Houston, Texas. In January 2010, your firm's Canadian subsidiary obtained a six-month loan of 100,000 Canadian dollars from a bank in Houston to finance the acquisition of a titanium mine in Quebec province. The loan will also be repaid in Canadian dollars. At the time of the loan, the spot exchange rate was U.S. $0.8990/Canadian dollar and the Canadian currency was selling at a discount in the forward market. The June 2010 contract (Face value = $100,000 per contract) was quoted at U.S. $0.8920/Canadian dollar.

a. Explain how the Houston bank could lose on this transaction assuming no hedging.

b. If the bank does hedge with the forward contract, what is the maximum amount it can lose?

Reference no: EM131792690

Questions Cloud

Uber segmentation geographic and demographic : What is Uber segmentation geographic and demographic?

Discuss the directors rely on the business judgment rule : Consider the position of each of the XYZ directors and advise whether they breached any of their duties under the Corporations Act 2001

Total percentage return to the peruvian investor : Now assume that the stock increases by $7, but that the dollar decreases by 10 percent versus the Peruvian sol. What will be the total percentage return.

Removed from useful service at particular location : Name three reasons why a telephone pole might be removed from useful service at a particular location.

How the houston bank could lose on the transaction : You are the vice-president of finance for Exploratory Resources, headquartered in Houston, Texas. In January 2010, your firm's Canadian subsidiary obtained.

Complete the financial plan : Discussion about the industry you are entering, in an historical and a geographical sense - What pricing technique will you use? Explain why.

What certifications are available for business analysts : What certifications are available for Business Analysts and what are the requirements for getting those certifications?

Find the minimum average cost : If the total cost function for a product is C dollars, where x represents the number of hundreds of units produced.

Present the adjusting journal entry that the company made : Present the adjusting journal entry that the company made at the end of theyear to provide for estimated bad debts during 2016

User Account

All Pages