Suppose an FI Has the Following Assets and Liabilities To Invest $100 Million of the $200 Million Securities in

question 25

Essay

Suppose an FI has the following assets and liabilities: $\begin{array} { | l | l | } \hline \text { Assets } & \text { Liabilities } \\\hline \text { A\$100 million loans (one year) in dollars } & \text { A\$200 million securities (one year) in dollars } \\\hline \$ 100 \text { million equivalent EUR loans (one year) (loans made in euros) } & \\\hline\end{array}$
To invest $100 million of the $200 million securities in one-year euro loans, the Australian FI engaged in the following transactions:
At the beginning of the year, it sold $100 million for euros on the spot currency markets at an exchange rate of A$2 to €1.
It takes the equivalent euro amount and makes one-year euro loans at a 15% interest rate.At the end of the year, the Australian FI repatriates the funds back to Australia at the same spot currency market rate of A$2/ €1.
(a) Calculate the equivalent euro amount of $100 million using the spot exchange rate stated in transaction (1).
(b) Calculate the value of the euro assets at the end of the year.
(c) Calculate the dollar proceed of the euro investment.
(d) Assume that the A$100 million loans yield a rate of 10% p.a.What is the FI's weighted return on investments?

---

Definitions:

Cognitive Therapy

A type of psychotherapy focused on modifying dysfunctional emotions, behaviors, and thoughts through systematic procedures.

Contingency Contract

A contract format commonly used in behavioral economics and psychology, specifying the delivery of rewards or consequences contingent on the performance of the desired behavior.

Behavioral Change

Refers to the process of transforming or modifying human behaviors, often aimed at adopting more desirable or healthful habits, through various psychological and intervention strategies.

Reinforcements

In behaviorism, any event that strengthens or increases the likelihood of a behavior being repeated, which can be positive (adding a desirable stimulus) or negative (removing an aversive stimulus).