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:

Cultural Discontinuities

Gaps or inconsistencies that arise when different cultural backgrounds lead to misunderstandings or conflicts in values, expectations, or behaviors.

Unexamined Assumptions

Preconceived notions or beliefs that are accepted without questioning or critical analysis.

Cultural Reason

A cultural reason refers to the rationale or motive behind actions, beliefs, or customs, rooted in the traditions or values of a particular society.

Conference Schedules

The planned timetable of events, sessions, and activities that will take place during a conference.