Canada National Bank Has 10 Million British Pounds (£) in One-Year

Multiple Choice

Canada National Bank has 10 million British pounds (£) in one-year assets and £8 million in one-year liabilities. In addition, it has one-year liabilities of 4 million euros (€) . Assets are earning 8 percent and both liabilities are being paid at a rate of 8 percent. All interest and principal will be paid at the end of the year. If the year-end spot exchange rate for the British pound is $1.50/£ and the liabilities pay 8 percent, what is the maximum that the € can appreciate and the bank still maintain a zero profit?

A) €1.30/$.
B) €1.33/$.
C) €1.35/$.
D) €1.50/$.
E) €1.60/$.