Suppose that instead of funding the $300 million investment in 8 percent British loans with U.S. CDs, the FI manager funds the British loans with $300 million equivalent one-year pound CDs at a rate of 5 percent and that instead of funding the $200 million investment in 10 percent Turkish loans with U.S. CDs, the FI manager funds the Turkish loans with $200 million equivalent one-year Turkish lira CDs at a rate of 6 percent.

a. what will the balance sheet look like?

b. calculate the return on the FI's loan portfolio, average cost of funds, and the net interest margin for the FI if the pound spot foreign exchange rate falls to $1.45 per pound and the lira spot foreign exchange rate falls to $0.52 per lira over the year.

c. calculate the return on the FI's loan portfolio, average cost of funds, and the net interest margin for the FI if the pound spot foreign exchange rate rises to $1.70 per pound and the lira spot foreign exchange rate rises to $0.58 per lira over the year.

Assets $500 million U.S. loans (one year) in dollars $300 million equivalent U.K. loans (one year) (loans made in pounds) Liabilities $1,000 million U.S. CDs (one year) in dollars $200 million equivalent Turkish loans (one year) (loans made in Turkish lira) The promised one-year U.S. CD rate is 4 percent, to be paid in dollars at the end of the year; the one-year, default risk-free loans in the United States are yielding 6 percent; default risk-free one-year loans are yielding 8 percent in the United Kingdom; and default risk-free one-year loans are yielding 10 percent in Turkey. The exchange rate of dollars for pounds at the beginning of the year is $1.6/1, and the exchange rate of dollars for Turkish lira at the beginning of the year is $0.5533/TRY1. Assets $500 million U.S. loans (one year) in dollars $300 million equivalent U.K. loans (one year) (loans made in pounds) Liabilities $1,000 million U.S. CDs (one year) in dollars $200 million equivalent Turkish loans (one year) (loans made in Turkish lira) The promised one-year U.S. CD rate is 4 percent, to be paid in dollars at the end of the year; the one-year, default risk-free loans in the United States are yielding 6 percent; default risk-free one-year loans are yielding 8 percent in the United Kingdom; and default risk-free one-year loans are yielding 10 percent in Turkey. The exchange rate of dollars for pounds at the beginning of the year is $1.6/1, and the exchange rate of dollars for Turkish lira at the beginning of the year is $0.5533/TRY1