Question

US FI makes a one year loan to a British company in pounds and funds it with two year notes in USD. US interest rate = 4. Is the FI short funded or long funded?

1) Short funded
2) Long funded

Answer 1

The FI in this scenario is long funded.

Step-by-step explanation:

An FI (Financial Institution) is considered long funded when the maturity of its liabilities is longer than the maturity of its assets. In this case, the FI is funding a one year loan to a British company in pounds with two year notes in USD. Since the maturity of the notes is longer than the loan, the FI is long funded.