Consider a multinational corporation who wishes to borrow a $1.25 billion jumbo loan in the Eurodollar market at LIBOR plus 1.25% over a 7-year period with an upfront fee of 1.25% (origination fee). The lead arranger bank Goldman Sachs retains $100 million in its book and spreads the risk and reward proportionally among the sub-participants as illustrated in the table. The arranger bank books $4.125 million arranger fee of the total upfront fee of $15.625 million collected from the borrower as shown in the table:

Banks	Fee	Amt of Capital Funded	Fee Income
12 Sub-participants	.01	$600 million	$6,000,000
10 Sub-participants	.01	$310 million	$3,100,000
12 Sub-participants	.01	$240 million	$2,400,000
Arranger	.04125	$100 million	$4,125,000
Total	1.25%	$1.25 billion	$15,625,000

1) Suppose 1-year LIBOR by the end of the first year is equal to 3.75%. How much interest is due to Goldman Sachs by the borrower at the end of the 2^nd year?

2) The $100 million loan on the Goldman Sachs book is 100% risk-weighted, requiring a minimum 8% regulatory capital by the bank regulator. (Goldman Sachs has to put up $8 million of its own capital and borrow remaining $92 million in the interbank market at the cost of 1-year LIBOR.) What is the return on equity for Goldman Sachs for funding $100 million of the syndication loan?

3) One of the sub-participating banks is a UAE bank who funded $24 million of the syndication loan. The regulator in the UAE requires 15% regulatory capital. What is the return on equity for this bank at the end of the 2^nd year provided that his bank has funding cost at the rate of LIBOR + 25 bps (100 basis points is equal to 1%)?

4) Describe how the borrower in the above syndication loan will manage its exposure to interest rate risk.