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?

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 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?

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