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Answer: Loss of about $61.0 dollars
**Correct answer: B. Loss of about $61.0 dollars** The net yen exposure is: \[ (500{,}000 - 300{,}000) + (100{,}000 - 680{,}000) = -380{,}000 \] So the bank is **net short ¥380,000**. If the yen appreciates, a short position loses value. The approximate dollar loss is: \[ -380{,}000 \times 2.0\% \div 125 = -60.80 \] So the expected result is a **loss of about $61.0**.
Author: Manit Arora
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Q-500.3. The following are the foreign currency positions of a U.S. bank, expressed in the foreign currency:
| Currency | Assets | Liabilities | FX Bought | FX Sold |
|---|---|---|---|---|
| Swiss franc (CHF) | CHF 135,000 | CHF 53,000 | CHF 10,700 | CHF 16,000 |
| British pound (£) | £30,500 | £13,400 | £9,100 | £12,200 |
| Japanese yen (¥) | ¥500,000 | ¥300,000 | ¥100,000 | ¥680,000 |
The spot exchange rates are currently as follows (all given in base/quote format): USD/CHF 0.980, GPD/USD $1.56, and USD/JPY ¥125.0
If the Japanese yen appreciates by 2.0%, what is the bank's expected gain or loss (note: this is a variation on Saunders’ Question #8) in US dollar terms?
A
Loss of exactly $380,000 dollars
B
Loss of about $61.0 dollars
C
Gain of about $800 dollars
D
Gain of exactly $7,600 dollars
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