Diamond Bank Case Study

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Register to read the introduction… Estimate the profits (or losses) that could be earned from this strategy. Should Diamond Bank pursue this …show more content…
$:
S$10,000,000 * $.43/C$ = $4,300,000 (3) Invest the $ at annual rate of 7.0% for 60 days:
$4,300,000 (1 + 7.0% * 60 / 360) = $4,350,166.67 (4) Convert U.S. $ back to S$ in 60 days:
$4,350, 166.67 / $.42/S$ = S$10,357,539.68 (5) Repay the S$ borrowed:
S$10,000,000 * (1 + 24.0% * 60 / 360) = S$10,400,000 (6) Loss = S$10,357,539.68 – S$10,400,000 = – S$42,460.32
Thus, the losses that could be earned from this strategy are S$42,460.32. And Diamond Bank should not pursue this strategy.

29. (Similar in spirit to question 29) Movements in cross Exchange Rates: Last year the euro trade at $1.32/€ and Kuwaiti dinar trade at $4.32/KWD. Today the euro trade at $1.438/€ and Kuwaiti dinar trade at $3.67/KWD. By what percentage did the cross exchange of the Kuwaiti dinar in European euro (i.e., € /KWD) change over the last year.
Last year: $4.32/KWD / $1.32/€ = €3.2727/KWD
Today: $3.67/KWD $1.438/€ = €2.5522/KWD
Percentage change = (St – St-1) / St-1
= (€2.5522/KWD – €3.2727/KWD) / €3.2727/KWD = – 0.2201
= – 22.01%
Thus, the cross exchange of the Kuwaiti dinar in European euro change over the last year is –

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