A local bank funding the offshore HGF loan The U.S. Commerce Bank in St. Louis is trying to expand its overseas bank lending market. Now it has the opportunity to provide a profitable loan to the UK subsidiary of the local HGFCorporation. However, the bank has to obtain 50 Million PS for three months right away to fund the foreign loan, which will be repaid back in Pound Sterling (PS). The CFO has taken an international banking seminar and is aware of the Eurocurrency market that can be utilized to borrow in foreign currency. In light of the data given below for the Eurocurrency interact rates available to the market, the CFO of the bank is now evaluating the funding cost of the following three alternatives: I. Borrow 3month money in the Eurocurrency market in pounds sterling 2. Borrow one-month in the Eururrency market in Pound sterling and then roll over. 3. Borrow 3month US dollars, change them into sterling at the spot rate and then hedge the repayment using the purchasing Pound sterling in the forward exchange market. Question: What are the relative costs of each proposal? Which proposal should the CFO of the Commerce Bank take? Justify! Eurocurrel!fy Ogerest Rates 10 - 9-518 - ld-3.'32 10-3,8- 10-1/4 3-7/16 - 13-1/4 14-1/4 13-3/4 14-1/4 14-1/4 -13-3/4 1.9075 - 1 9085 2137 - 2138 20-22 1.3870 - 1.3880 oog-c_13 0.17-0.24 - 9-1/2 15-13 10 ld-in - 10-3,'B Spot and F orward 1.9105