Your employer, CYC Financial Services Inc. (a U.S. based company) is in the business of buying loans in the secondary market (that is, buying the right to collect the payments on loans made by banks). Presently, CYC Financial is concerned about current market conditions (i.e. fluctuations in market prices of goods/services, rising interest rates, etc.).

The overall loan market at the moment seems strong even though interest rates are set to increase by a small fraction in the near term. Though some analysts note that the appetite for commercial real estate is unstable given the choice of flexible work schedules and work from home options that companies offer to employees post pandemic.

(a) In your current position as a senior loan specialist, you are working on buying loans in the secondary market. Before you can authorize the purchase, you are asked to explain if you would be willing to pay more or less for a given loan under the following circumstances: (1) the borrower has been late on a number of loan payments. (2) the borrower has a long standing relationship with CYC Co. and has a portfolio account worth $5 mio. with CYC,

As you prepare a response to (a), consider CYC’s payment system as a financial intermediary (ref. ch 27.3), Also, the impact of the borrower’s $5 mio. On CYC’s balance sheet (ref. pg. 652 – 654).

(b) Since there is a good possibility that short term interest rate could go up, how would your decision in (a) affect CYC’s relationship with the rest of the community for commercial loans. For instance, explain how a positive decision in (a) could pressure overall price of loans for small business? Include two economic factors that could cause a domino effect on “Main Street” businesses. (ref. “What Led To The 2008-2009 financial crisis/pg. 654-655).

(c) The borrower is a firm that has just reported a high level of profits, however, you know that most of the borrower’s real estate holdings are in a geographic part of the country with weather uncertainties. If public investment in physical capital spending stall in 2023, would this affect the borrower’s profits in 2023? Why/why not? Include two macro economic factors will impact your recommendation (based on a change in physical capital spending) on the purchase of the loans

Answer rating: 100% (QA)

a In my current position as a senior loan specialist I would be willing to pay less for a given loan if the borrower has been late on a number of loan ... View the full answer