1. Using the formula from the preceding problem (variation shown below), assuming that the change in the spot rate has already occurred and been accounted for (thus does not need to be recalculated) please compute the effective financing rate based on that percentage change in the spot rate.

Australian lending rate is at 4%, while the Singapore loan rate is 3%. Using the formula (1+r) [1 + (%)] 1 = Effective Financing Rate Based on That % Change in Spot Rate, please calculate possible rates and then calculate the rates based on probabilities of occurrence using a 50% of the loan portfolio being from each country (Australia and Singapore) given the probability of occurrence.

Singapore) given the probability of occurrence. Possible % change in Spot Rate -2% Financing rate based on that % change in the spot rate Probability of Occurrence 70% 30% Outcome 1 for Australian Dollar: 4% Outcome 2 for Australian Dollar: 4% 8% -1% Outcome 1 for Singapore Dollar: 3% Outcome 2 for Singapore Dollar: 3% 60% 40% 9% Possible Joint Effective Financing Rates Australian Dollar Singapore Dollar Computation of Joint Probability Computation of Effective Financing Rate of Portfolio (50% in each) 100% Singapore) given the probability of occurrence. Possible % change in Spot Rate -2% Financing rate based on that % change in the spot rate Probability of Occurrence 70% 30% Outcome 1 for Australian Dollar: 4% Outcome 2 for Australian Dollar: 4% 8% -1% Outcome 1 for Singapore Dollar: 3% Outcome 2 for Singapore Dollar: 3% 60% 40% 9% Possible Joint Effective Financing Rates Australian Dollar Singapore Dollar Computation of Joint Probability Computation of Effective Financing Rate of Portfolio (50% in each) 100%