A U.S. based institution, raises funds and makes investments all around the worl
ID: 2588214 • Letter: A
Question
A U.S. based institution, raises funds and makes investments all around the world. It has the following balance sheet accounts Pound-denominated loan SUS-denominated loan $135,000,000 (£100,000,000), 8% annual rate $90,000,000, 7% annual rate Yen-denominated CDs SUS-denominated deposits $100,000,000 (¥11,000,000,000), 4% annual rate $100,000,000. 5% annual rate All accounts have a 1-year maturity. The institution does not have any other business income or expenses, it's all from these 4 accounts (plus equity). The institution 's tax rate is 30%. The institution computes and prepares all of its financial statements in U.S. dollars The institution expects the following exchange rates in one year: $1.25 US = £1.00 ¥115-S 1.00 US (a) What does the balance sheet look like with these four accounts and equity? Prepare the balance sheet for these four accounts and its equity. P.S. With details and equations if it applicable, please. My goal is to understand not only the answer.Explanation / Answer
Firstly we will convert all other loan into USD at closing rate Closing Balance Balance at Beg. Of year Interest (Exp)/Income Forex Gain/(Loss) Pound denominated loan 10,00,00,000 1.25 12,50,00,000 13,50,00,000 1,00,00,000 8% Interest on Pound Denominated Loan 80,00,000 1.25 1,00,00,000 -1,25,00,000 USD Denominated Loan 9,00,00,000 1 9,00,00,000 9,00,00,000 - 7% Interest on USD Denominated Loan 63,00,000 1 63,00,000 -63,00,000 Yen-Denominated CD's 11,00,00,00,000 1/115 9,56,52,174 10,00,00,000 -43,47,826 4% Interest onYen-Denominated CD's 44,00,00,000 1/115 38,26,087 38,26,087 USD Denominated Deposits 10,00,00,000 1 10,00,00,000 10,00,00,000 - 5% Interest on USD Denominated Deposits 50,00,000 1 50,00,000 50,00,000 56,52,174 Total Interest Income (5000000+3826087) 88,26,087 Total Interest Expenses=-(12500000+6300000) -1,88,00,000 Forex Gain (10000000-4347826) 56,52,174 Net Loss -43,21,739 Balance Sheet Assets Short Term Deposit 4% Yen Dominated CDs 9,56,52,174 5% Domestic Deposits 10,00,00,000 Interest on deposits receivables 88,26,087 Cash in Hand 2,50,00,000 Total Assets 22,94,78,261 Liabilities 7% Domestic Loan 9,00,00,000 8% Pound Loan 12,50,00,000 Interest on the loan payable 1,88,00,000 Total Liabilities 23,38,00,000 Retained Earning -43,21,739 Shareholders equity - Total Liabilities 22,94,78,261
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