What Is the End-Of-Year Profit or Loss to the Bank

question 13

Multiple Choice

What is the end-of-year profit or loss to the bank if in one year the exchange rate falls to US $0.765 per Canadian dollar? (Assume that there is no change in interest rates.)

• A)Loss of US $75,000.
• B)Profit of C $274,000.
• C)Loss of US $7,000.
• D)Profit of C $9,000.
• E)Loss of US $5,000.

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Definitions:

Geometric Average

A method of calculating the average rate of return of a set of values by multiplying them together and taking the nth root, where n is the number of values.

Efficient Capital Market

A market in which securities' prices fully reflect all available information, making it impossible to consistently achieve higher returns without taking additional risks.

Income Component

Income Component pertains to the portion of a financial product's return that is generated from the payment of interest or dividends.

Capital Gain

The profit earned from the sale of an asset like stocks, bonds, or real estate, which exceeds its purchase price.