Summarize the following in 2 to 3 pages:
- Discuss issues raised concerning Sanders’ approach in connection with the sale to Brown and Massey.
- Include some of the other options that Sanders may have considered other than the $2,000,000 cash price.
- Explain the reasons for regulatory control over financial markets.
Let’s assume Colonel Sanders obtained a six-month loan of $150,000 Canadian dollars from an American bank to finance the acquisition of a building for another Canadian franchise in Quebec province. The loan will be repaid in Canadian dollars. At the time of the loan, the spot exchange rate was U.S. $0.8995/Canadian dollar and the Canadian currency was selling at a discount in the forward market. The contract after six months (face value = C$150,000 per contract) was quoted at U.S. $0.8930/Canadian dollar.
- Explain how the American bank could lose on this transaction assuming no hedging.
- Assume the bank does hedge with the forward contract, what is the maximum amount it can lose?
