Question

A U.S. bank borrowed dollars, converted them to euros, and invested in euro-denominated CDs. What did the U.S. bank do with the borrowed dollars?

1) Invested in U.S. dollar-denominated CDs
2) Converted them to yen
3) Invested in euro-denominated stocks
4) Converted them to euros and invested in euro-denominated CDs

Answer 1

The U.S. bank converted the borrowed dollars to euros and invested in euro-denominated CDs, a common international banking operation.

Step-by-step explanation:

The U.S. bank used the borrowed dollars to engage in an international financial activity. Specifically, the bank converted the borrowed dollars to euros and then used those euros to invest in euro-denominated Certificates of Deposit (CDs). This is a common practice in international banking operations where financial institutions, to hedge against exchange rate fluctuations or to seek higher returns, shift their funds across different currencies and invest them in financial instruments like stocks, bonds, or CDs in foreign markets.