Eurodollars are destroyed at any particular stage

This preview shows page 18 - 21 out of 24 pages.

Eurodollars are destroyed at any particular stage.
Chapter 11 - Commercial Banks, Major Corporations, and Federal Credit Agencies in the Money Market J.P. Morgan Chase Bank Assets Liabilities (1) Reserves + (1) Deposit owed German expoter + (2) Deposit of German exporter - (2) Deposit at Barclays + (6) Deposit at Barclays - (6) Deposit of German exporter + Barclay's Assets Liabilities (2) Accts. At Chase + (2) Time deposit owed German exporter + (3) Loan to Japanese firm + (5) Time deposit owed German exporter - (3) Cash - (4) Loan to Japanese firm - (4) Deposit at Chase + (5) Accts. At Chase Japanese Firm Assets Liabilities (3) Cash + (3) Loan owed to Barclays + (4) Cash - (4) Loan owed to Barclays - Numbers shown in the T accounts above refer to: 1. Payment to German exporter by a Houston importer. 2. German firm’s deposit in Barclays (creation of a Eurodollar deposit). 3. Barclay’s loan to a Japanese firm. 4. Japanese firm’s repayment of loan (destruction of Eurodollars). 5. Return of funds to the U.S. 18. A company known as Standard Quality Importing ships DVD players made in Japan to retail dealers in the United States and Europe. It decides to place an order with its Japanese supplier for 10,000 DVD players at $200 each after securing a line of credit from Guaranty Security Bank in Los Angeles. Guaranty issues a credit letter to the Japanese supplier promising payment in U.S. dollars 90 days hence. However, the Japanese firm needs the promised funds within seven days from receipt of the credit letter to make purchases of technical components from an electronics firm in Phoenix, Arizona. Explain and illustrate with T accounts and diagrams how a bankers' acceptance would arise from the foregoing transactions, how the Japanese supplier could receive the dollars she needs in timely fashion, and what would happen to the acceptance at the end of the 90-day period. Use T account entries to show the movement of funds from the importer to the Japanese supplier, to the electronics firm, and to money market investors. - 11-19
Chapter 11 - Commercial Banks, Major Corporations, and Federal Credit Agencies in the Money Market ANSWER: A banker’s acceptance could arise from the situation described quite easily due to the discrepancy between the 90-day promise to pay and the Japanese firm’s need for payment within 7 days. The Japanese firm could receive the needed dollars in timely fashion by taking the time draft it receives from the issuing bank to its principal bank and discounting it in advance of its maturity. After 90 days, the holder of the acceptance will present it to Guaranty Security Bank for payment. Standard Quality Importing Assets Liabilities (1) BA from Guaranty + (1) Credit from Guaranty + (2) Selling BA - (6) Credit from Guaranty - (2) Cash + (3) Inventories (DVDs) + (3) Cash - (5) Inventories (DVDs) – (5) Cash + (6) Cash - Guaranty Security Bank Assets Liabilities (1) Credit to Standard + (1) BA + (6) Credit to Standard - (6) BA - 11-20 Standard Quality

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture