Problem:
Bankone issued $200 million worth of one-year CD liabilities in Brazilian real's at a rate of 6.50 percent. The exchange rate of U.S. dollars for Brazilian real's at the time of the transaction was $1.00/Br 1.
Required:
Question 1: Is Bankone exposed to an appreciation or depreciation of the U.S. dollar relative to the Brazillian real?
Question 2: What will be the percentage cost to Bankone on this CD if the dollar depreciates relative to the Brazillian real such that the exchange rate of U.S. dollars for Brazillian reals is $1.2/Br 1 at the end of the year?
Question 2: What will be the percentage cost to Bankone on this CD if the dollar appreciates relative to the Brazillian real such that the exchange rate of U.S. dollars for Brazillian reals is $0.9/Br 1 at the end of the year?
Note: Give you opinion citing relevant ethical principles.