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8. A company is working out of Vienna with operations in New York simultaneously calls Citibank in New York City and Barclays in London. The banks give the following quotes on the euro simultaneously. (3 marks) Citibank NYC Barclays London $1.2828–297€ $1.2824-25/€ Using $2 million or its euro equivalent, determine whether the corporate treasury could make geographic arbitrage profit with the two different exchange rate quotes.
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The provision for loan and lease losses: A. is another name for a bank's burden. B. are the realized losses from the previous accounting period. Crepresents management's estimate of potential lost revenue from bad loans. D.does not affect net income. E determined by the Federal Reserve for all banks.
Expert Solution
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Buy 1 Euro at 1.2825$ from Barclays London
Sell 1 Euro at 1.2828$ to Citibank NYCThus there is geographic arbitrage profit
Using 2 million dollars buy euros =2*10^6/1.2825=1559454.191 euros from Barclays
Sell euros and get =2*10^6/1.2825*1.2828 dollars =2000467.836 dollars from Citibank NYCArbitrage Profit=2000467.836-2000000=467.836 dollars
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Sol:
The provision for loan and lease losses are the realized losses from the previous accounting period.
Answer is B - are the realized losses from the previous accounting period.
The provisions for loan and lease losses are the estimates of losses that arise due to non-payment of loan and lease amount. This provision is kept in a separate account for a temporary period of time and they are either reinstated or write off based on the expectation made for the loan amount to be received or not. It is the provision made for the estimated loss of revenue which will arise due to non-payment of loan and lease amount or loans which have turned bad.
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