A USFI Is Raising All of Its $20 Million Liabilities in

question 52

Multiple Choice

$\begin{array}{lrr}\text { Assets } &\text {Liabilities} \\& \text { \$ 10 million U.S. loans(10 percent) } & \text { \$ 20 million U.S. CDs(9 percent) } \\ &\text { \$ 10 million UK loans (16 percent) } &\\ &\text { (loans made in sterling) } &\\\end{array}$
A U.S.FI is raising all of its $20 million liabilities in dollars (one-year CDs) but investing 50 percent in U.S.dollar assets (one-year maturity loans) and 50 percent in UK pound sterling assets (one-year maturity loans) .Suppose the promised one-year U.S.CD rate is 9 percent,to be paid in dollars at the end of the year,and that one-year,credit risk-free loans in the United States are yielding only 10 percent.Credit risk-free one-year loans are yielding 16 percent in the United Kingdom.
What amount,in sterling,will the FI have to repatriate back to the U.S.after one year if the exchange rate remains constant at $1.60 to $\le$ 1?

• A)\(\le\)6.25 million.
• B)\(\le\)7.875 million.
• C)\(\le\)7.25 million.
• D)\(\le\)6.625 million.
• E)\(\le\)11.26 million.

---

Definitions:

Total Asset Turnover

A financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.

Inventory Turnover

A proportion that demonstrates the frequency with which a company's stock is bought and replenished within a given timeframe.

Gross Margin Ratio

A financial metric that measures a company's operational efficiency by comparing its gross profit to its net sales.

Return on Common Stockholders' Equity

A financial ratio that measures the amount of net income returned as a percentage of shareholders' equity, indicating profitability.