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Consider the Balance Sheets of Bank a and Bank B

question 68

Essay

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 £1.00 = $2.00.Show the correct balances in each account if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 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     B's Eurodollar deposit £500  
£ deposit at A  £100     B's € deposit $1,000  
 Cash in the Vault  $200     Other Liabilities $200  
 Other Assets  $1,00      Owners Equity  $50  
  -----  ------      -------   -------
Total Assets £2,250     Total Liabilities & Equity   £2,250  

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