A bank has entered into a forward contract to sell 50,000 ounces of gold at $1,500 per ounce with a remaining life of 6 months. The current price of gold is $1,292.40 per ounce and the risk-free interest rate is 2% p.a. (continuously compounded). What is the credit equivalent amount of the bank’s position, i.e., max(V,0) + a*L, under Basel I? Assume the add-on factor is equal to 1.0% the principal. a. Zero b. $750,000 c. $9.6 million d. $10.4 million

A bank has entered into a forward contract to sell 50,000 ounces of gold at $1,500 per ounce with a remaining life of 6 months. The current price of gold is $1,292.40 per ounce and the risk-free interest rate is 2% p.a. (continuously compounded). What is the credit equivalent amount of the bank’s position, i.e., max(V,0) + a*L, under Basel I? Assume the add-on factor is equal to 1.0% the principal. a. Zero b. $750,000 c. $9.6 million d. $10.4 million

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 30P

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