The Average Duration of the Loans Is 10 Years What Is the Net Gain or Loss on the Loan

question 59

Multiple Choice

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $\begin{array}{llr}\text { Consumer loans } & \$ 50 \text { million Deposits } & \$ 235 \text { million } \\\text { Commercial Loans } & \$ 200 \text { million Equity } & \$ 15 \text { million } \\\text { Total Assets } & \$ 250 \text { million Total Liabilities \& Equity } & \$ 250 \text { million }\end{array}$
What is the net gain or loss on the loan given that the exchange rates at the time of repayment were $1.63/ $\le$ in the cash market and 1.62/ $\le$ in the futures market? Assume that the futures position is opened and unwound as stated in previous question.

• A)$2,120,000 loss.
• B)$1,330,000 loss.
• C)$2,670,000 loss.
• D)$1,330,000 gain.
• E)$2,670,000 gain.

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Definitions:

Period Costs

Expenses that are not directly tied to the production of goods and are expensed in the period in which they are incurred.

Average Costs

The cost per unit calculated by dividing the total cost of production by the number of units produced.

Variable Cost

Expenses that change in direct proportion to the amount of goods or services produced.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent, salaries, and loans.