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

question 105

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.

If the spot foreign exchange rate remains constant at $1.60 to $\le$ 1 throughout the year,the return from the UK investment will be

• A)15%.
• B)12%.
• C)16%.
• D)13%.

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Definitions:

Sigmoidoscopy

A medical examination of the sigmoid colon by means of a flexible tube inserted through the anus to check for cancer, polyps, and other anomalies.

Gastroscopy

A diagnostic procedure that involves using a gastroscope to visually examine the interior of the stomach.

Colonoscopy

A medical procedure using a camera to examine the interior lining of the colon and rectum.

Proctoscopy

A medical procedure where a special instrument, called a proctoscope, is used to examine the anal cavity, rectum, or sigmoid colon.