Required: a. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate falls to $1.20/£1 and the lira spot foreign exchange rate falls to $0.156/TL1 over the year. b. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate rises to $1.40/£1 and the lira spot foreign exchange rate rises to $0.17/TL1 over the year. c. Suppose that the FI funds the $250 million U.S. loans with $250 million one-year U.S. CD at a rate of 4 percent; funds $150 equivalent British loans with $150 million equivalent one-year pound CDs at a rate of 5 percent; funds $100 million equivalent Turkish loans with $100 million equivalent one-year Turkish lira CDs at a rate of 6 percent. Assume no other changes. What will the FI’s balance sheet look like after these changes have been made? d. Using the information in part ‘c’ above, calculate the return on the FI’s loan portfolio, the average cost of funds, and the net return for the FI if the pound spot foreign exchange rate falls to $1.20/£1 and the lira spot foreign exchange rate falls to $0.156/TL1 over the year.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 23QA

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Required:
a. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate falls to $1.20/£1 and the lira spot foreign exchange rate falls to $0.156/TL1 over the year.
b. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate rises to $1.40/£1 and the lira spot foreign exchange rate rises to $0.17/TL1 over the year.
c. Suppose that the FI funds the $250 million U.S. loans with $250 million one-year U.S. CD at a rate of 4 percent; funds $150 equivalent British loans with $150 million equivalent one-year pound CDs at a rate of 5 percent; funds $100 million equivalent Turkish loans with $100 million equivalent one-year Turkish lira CDs at a rate of 6 percent. Assume no other changes. What will the FI’s balance sheet look like after these changes have been made?
d. Using the information in part ‘c’ above, calculate the return on the FI’s loan portfolio, the average cost of funds, and the net return for the FI if the pound spot foreign exchange rate falls to $1.20/£1 and the lira spot foreign exchange rate falls to $0.156/TL1 over the year.

Suppose that a U.S. Fl has the following assets and liabilities:
Assets
$250 million U.S. loans (one year)
Loans made in dollars: $
$150 million equivalent U.K. loans (one year)
Loans made in pounds: £
$100 million equivalent Turkish loans (one year) (10%)
Liabilities
$500 million U.S. CDs (one year)
in dollars: $
(6%)
(4%)
(8%)
Loans made in Turkish lira: TL
The promised one-year U.S. CD rate is 4 percent, to be paid in dollars at the end of the year; the one-year
default risk-free loans are yielding 6 percent in the United States; one-year default risk-free loans are
yielding 8 percent in the United Kingdom; and one-year default risk-free loans are yielding 10 percent in
Turkey. The exchange rate of dollars for pounds at the beginning of the year is $1.3/£1, and the exchange
rate of dollars for Turkish lira at the beginning of the year is $0.1664/TL1.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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