Fianancial Management: Short Term Assets and Liabiltity Management

1. Determine the investment portfolio composition for Kent's eastern branch that would maximize the expected effective yield while satisfying the restriction imposed by the parent.

The investments portfolio composition for Kent's eastern branch should consist of $5 million invested in New Zealand dollars with an expected effective yield of 12.27%, investment of $5 million in Japanese yen with an expected effective yield of 8% and investment of $5 million in Australian dollars with an expected effective yield of 6.56 %.

2. What is the expected effective yield of the investment portfolio?

The expected effective yield of the investment portfolio of 33.3% invested in each of the three currencies would be 12.27% (4.086%) for New Zealand, 8% (2.554%) for the Japanese yen and 6.56% (2.18%) for the Australian dollar for a total of 8.93%.

(33.3% x 12.27%) + (33.3% x 8%) + (33.3% x 6.56%) = 4.086% + 2.554% + 2.18%

= 8.93%

3. Based on the expected effective yield for the portfolio and the initial investment amount of $15 million, determine the annual interest to be earned on the portfolio.

The annual interest earned on the portfolio would be 8.93% x $15,000,000 for a total of $1,339,500.

4. Determine the financing portfolio composition for Kent's western branch that would minimize the expected effective financing rate while satisfying the restriction imposed by the parent.

The financing portfolio composition for Kent's western branch that would minimize the expected effective financing rate and satisfy the restrictions imposed by the parent should be $5 million borrowed in Canadian dollars, $5 million borrowed in U.S. dollars, and $ 5 million borrowed in Australian dollars.

5. What is the expected effective financing rate of the total amount of funds borrowed?

The expected effective financing rate of the total amount of funds borrowed would be 33.3% financed for each of the three currencies with 7.80 % (2.6%) for Canadian dollars, 9% (3 %) for U.S. dollars, and 9.44% (3.14%) for Australian dollars for a 8.74% expected effective financing rate.

(33.3% x 7.8%) + (33.3% x 9%) + (33.3% x 9.44%)

= 2.6% + 3.0% + 3.14%

= 8.74%

6. Based on the expected effective financing rate for the portfolio and the total amount of $15 million borrowed, determine the expected loan repayment amount beyond the principal borrowed.

The expected loan repayment amount beyond the principal borrowed would be 8.74% x $15,000,000 for total of $1,311,000.

7. When the expected interest received by the eastern