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?

Comprehend how situational leadership fosters leadership flexibility and effectiveness.

Acknowledge the limitations and strengths of the situational approach to leadership.

Understand the concept of capital gains and losses and how they are recognized.

Identify the various tax treatments for different types of assets.

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Definitions:

Suffered Losses

Refers to the financial, physical, or emotional damages incurred by an individual or entity, often used in legal contexts to determine compensatory needs.

Contractual Obligations

Duties that a party is bound to perform as per the terms and conditions specified in a contract.

Ground of Intoxication

A legal justification or defense based on the claim that an individual's actions were significantly impaired due to the influence of alcohol or drugs.

Ratifying the Contract

The act of formally confirming or approving an agreement to make it officially valid.