International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Which of the following is an instrument of monetary policy?
The interest rate on three-month Treasury bills
The mortgage interest rate
The budget deficit
The discount rate
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…
Below you see yields on T-bills from March 15, 2022 with maturities of 4, 8, 13, 26 and 52 weeks. Using the Bank Discount rate method, compute the price you would have to pay on all these T-bills that you intend to hold with the given maturities. Is there a relationship between prices and yields in this case and does this relationship surprise you?
Date
Bank Discount 4 weeks
Bank Discount 8 weeks
Bank Discount 13 weeks
Bank Discount 26 weeks
Bank Discount 52 weeks
3/15/2022
0.21%
0.29%
0.46%
0.84%
1.19%
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- Consider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. 1). What is the total credit equivalent amount? 2). All counterparties have a credit rating of BBB. What is the capital amount of the FI needs to hold against these exposures assuming CAR of 10.5%?arrow_forwardConsider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. What is the total capital amount the FI needs to hold against these exposures? (Assume data obtained from 2020 FI records) Select one: A. $5.04 million B. $9.87 million C. $8.4 million D. $7.52 millionarrow_forwardConsider an FI with the following off-balance-sheet items: A two-year loan commitment with a face value of $120 million, a standby letter of credit with a face value of $20 million and trade-related letters of credit with a face value of $70 million. All counterparties have a credit rating of BBB. Assuming a required capital ratio of 8%, what is the capital amount the FI needs to hold against these exposures? ANSWER MUST BE 7.52 millionarrow_forward
- Suppose the central bank of Oman issued Treasury bill on behalf of the government. The maturity of this bill is 91 days. And the required discount rate on this bill is 8 percent. Calculate the market price or present value of Treasurarrow_forwardA graphical plot of interest rates on government debt securities (Treasury Bills) of varying maturities can have one of three shapes; increasing, decreasing, or flat. The data below show the interest rates on the government of Ghana debt securities (Treasury Bills) on two separate dates; 31st January 2019 and 4th May 2020.31 January 2019 4th May 202091 Day T’Bill 14.65% 14.12%182 Day T’Bill 15.10% 15.31%364 Day T’Bill 17.38% 16.92%Required: ii) On both dates, the yield curve appears to be upward sloping. What reasons would you assign for these upward sloping shapes of the yield curve in Ghana on these separate days? Your explanation should be practical and as detailed as possible but not exceeding 800 words.arrow_forwardBased on the reading and the table above, is the exchange rate of dollars to pounds fixed or flexible? Explain your answer.arrow_forward
- Create the spreadsheet models shown in below images and answer the following questions. a. What is the effect of a change in the interest rate from 8% to 10% in the spreadsheet model shown in Figure A? b. For the original model in Figure A, what interest rate is required to decrease the monthly payments by 20%? What change in the loan amount would have the same effect? c. In the spreadsheet shown in Figure B, what is the effect of a prepayment of $200 per month? What prepayment would be necessary to pay off the loan in 25 years instead of 30 years?arrow_forwardBelow are two T-Bill purchases: A T-Bill with a face value of $900,000 and current market price of $850,000. The maturity date is in 250 days. A T-bill has a face value of $600,000, a current market price of $570,000 and matures in 200 days. Please calculate for both T-bill purchases based on the following: (a) What is the bank discount yield? Calculate the holding period yield Calculate the Effective Annual Yield Calculate the Money Market Yield (b)Explain why the Effective Annual Yield is greater than the Bank Discount Yieldarrow_forwardExplain the meaning of a 20% annual percentage rate (APR) quotedby the credit c.ird company? And how the credit card company calculates theinterest payment?arrow_forward
- An FI has estimated the following annual costs for its demand deposits: management cost per account = $150, average account size = $1600, average number of cheques processed per account per month = 75, cost of clearing a cheque = $0.10, fees charged to customer per cheque = $0.05, and average fee charged per customer per month = $15. (a) What is the implicit interest cost of demand deposits for the FI? (b) If the FI has to keep an average of 8 per cent of demand deposits as required reserves with the RBA paying no interest, what is the implicit interest cost of demand deposits for the FI? (c) What should be the per-cheque fee charged to customers to reduce the implicit interest costs to 3 per cent? Ignore the reserve requirements.arrow_forwardA thrift has an annual CGAP of -$25 million. A credit union has an annual CGAP of +$5 million. The thrift has total assets of $500 million and net income of $7.5 million and the credit union has total assets of $40 million and net income of $0.7 million. Calculate each institution's CGAP as a percent of assets. Based on the gap, which institution's NII is more sensitive to interest rates?arrow_forwardA graphical plot of interest rates on government debt securities (Treasury Bills) of varying maturities can have one ofthree shapes; increasing, decreasing, or flat. The data below show the interest rates on the government of Ghana debtsecurities (Treasury Bills) on two separate dates; 31st January 2019 and 4th May 2020. 31 January 2019 4th May 202091 Day T’Bill 14.65% 14.12%182 Day T’Bill 15.10% 15.31%364 Day T’Bill 17.38% 16.92%Required:i) Graph separate yield curves for the two dates. ii) On both dates, the yield curve appears to be upward sloping. What reasons would you assign for these upwardsloping shapes of the yield curve in Ghana on these separate days?arrow_forward
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