What is the end of year profit or loss

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You work for an Australian bank. Your bank issues a one-year CD at 5% annual interest in Australia to finance a ¥200,000 Chinese bond, which has a 2-year maturity and is selling at par. It pays a fixed rate at 7% annually. You expect to liquidate your position in one year. Currently, spot exchange rates are $0.8 per Chinese Yuan.

What is the end of year profit or loss (in Australian $) on the bank's position if in one year the exchange rate falls to $0.55 per Chinese Yuan? (Assume no change in interest rates.)

 

 

Reference no: EM132601873

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