Question

QUESTION 15 OZ Bank is issuing another AUD 50m bonds but this time the buyer happens to be Leo Lederhosen who has got his account at Deutsche Bank in Germany. Leo has to pay OZ Bank against 0.60 EUR. To finance his bond purchase Leo will therefore transfer an account at Deutsche Bank (so-called correspondent bank). Shortly, after the transfer, the ECB is raising the interest rate and the EUR is (AUD EUR) 50m. OZ Bank is willing to buy EUR(sell AUD) from Leo at the rate 1 AUD m EUR to OZ Bank. By coincident OZ Bank has (appreciating/ depreciating) to AUD/EUR 0.50. Use the attached file to add each of the aforementioned transactions/change s/profits/losses to the balance sheets of OZ Bank and Deutsche Bank. Question Test 4 Correspondent Bank.pdf

Answer 1

Solution

Note: I am not able to access the above mentioned pdf by you.

Leo has to pay OZ bank AUD 50 million.

To finance his bond purchase Leo will therefore transfer 30 million Euro to OZ bank

The ECB is raising the interest rate and the EUR is appreciating to AUD / EUR 0.50 from the initial exchange rate of AUD / EUR 0.60

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