Canada Wide Savings, Loan and Trust Company
(4 pages of text)
Case (Gen Exp)
The chief executive officer of a financial institution must decide whether or not to grant a $3 million loan to an investor in mutual funds. The financial institution makes loans of $2 for every $1 invested in mutual funds to qualified investors. The issue here is to determine whether the risks associated with this loan application justify the investment. The case involves assessing the various risks associated with the loan, including the credit risk attached to the borrower, the market risk of the planned investment program, and the currency risk of a loan in Canadian dollars and investments in foreign securities.
The case describes the situation of the lender but could also be used from the point of view of a borrower and would ask the question: “Is this plan to borrow $3 million a good investment strategy for this investor?” The case develops a clear understanding of the risks associated for lender and borrower and provides a basis for thinking through this investment strategy.
Finance and Insurance
Canada, Small, 2012
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