QUESTION 7 A company receives a 5-year $100 million loan commitment from Wells Fargo at a fixed rate of 4.5%. The up-front commitment fee is 40 basis points and the unused portion of the loan is charged 15 basis points. The bank borrows a total of $45 million at the beginning of the year and none thereafter. The following is true, except: The interest paid on the drawdown amount for the full year is $2,025,000. The interest rate paid on the drawdown amount for the full year is 4.90% The fee for the loan commitment for the full year is $400,000. The fee for the unused portion of the loan commitment for the full year is $82,500 QUESTION 8 A bank agrees to buy three-month forward €500,000 at $1.14/€ from its client and simultaneously sells three-month €500,000 at $1.16/€ to offset the position. Three months later the Euro appreciates to $1.15/€ and the client declares bankruptcy. The following is true, except At the end of three months, the bank will incur a loss of $5,000 compared to the expected gain. At the end of the three month, the bank will incur a gain of $5,000 compared to the expected gain. The current transaction requires the bank In three months to purchase €500,000 in exchange for $570,000. The current transaction requires the bank In three months to sell €500,000 in exchange for $580,000.
QUESTION 7
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A company receives a 5-year $100 million loan commitment from Wells Fargo at a fixed rate of 4.5%. The up-front commitment fee is 40 basis points and the unused portion of the loan is charged 15 basis points. The bank borrows a total of $45 million at the beginning of the year and none thereafter. The following is true, except:
The interest paid on the drawdown amount for the full year is $2,025,000.
The interest rate paid on the drawdown amount for the full year is 4.90%
The fee for the loan commitment for the full year is $400,000.
The fee for the unused portion of the loan commitment for the full year is $82,500
QUESTION 8
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A bank agrees to buy three-month forward €500,000 at $1.14/€ from its client and simultaneously sells three-month €500,000 at $1.16/€ to offset the position. Three months later the Euro appreciates to $1.15/€ and the client declares bankruptcy. The following is true, except
At the end of three months, the bank will incur a loss of $5,000 compared to the expected gain.
At the end of the three month, the bank will incur a gain of $5,000 compared to the expected gain.
The current transaction requires the bank In three months to purchase €500,000 in exchange for $570,000.
The current transaction requires the bank In three months to sell €500,000 in exchange for $580,000.
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A loan commitment is a promise made by a corporate or other finance institutions to lend a specific amount of money to a company or individual. A loan commitment is helpful for individuals wanting to purchase a home or for businesses preparing to make a significant purchase.
The parties to a forward are committed to purchase or sell the underlying product at expiration.
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