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

question 74

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 exchange rate had fallen from $1.60/ $\le$ 1 at the beginning of the year to $1.50/ $\le$ 1 at the end of the year,the weighted return on the FI's asset portfolio would be

• A)13.29%.
• B)12.56%.
• C)16%.
• D)8.75%.
• E)9.375%.

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Definitions:

Management Process

A systematic approach to planning, organizing, leading, and controlling an organization's resources to achieve its objectives.

Planning and Budgeting

The process of defining an organization's goals, establishing strategies to achieve those goals, and allocating resources accordingly.

Controlling

The management function that involves monitoring performance, comparing it with goals, and taking corrective action as needed.

Democratic Style

A leadership approach that involves team members in the decision-making process, valuing their input and fostering a collaborative working environment.