QUESTION 3 (10) TradingBank Ltd., a German bank headquartered in Frankfurt, approved a loan to...
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QUESTION 3 (10) TradingBank Ltd., a German bank headquartered in Frankfurt, approved a loan to the amount of $375 million at an interest rate of 8.25% (paid-annually) to a American multinational (corporate) client 7-years ago. The American multinational primary business is international trade although the corporation is also involved in large construction projects. It is currently estimated that this (loan) transaction has an expected default probability of 18% while the (loan) transaction is secured by collateral to the amount of $155 million. Currently the loan amount still outstanding is $270 million and the Recovery Rate (RR) is estimated at 63%. (a) Estimate the EAD for the loan. {1} (b) Estimate the LGD for the loan in monetary terms. {3} (c) Estimate the LGD for the loan in percentage terms. {2} (d) Estimate the EL for this loan made by TradingBank. {3} (e) Estimate the UL for this loan.
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