Exhibit 20-1 Assume a U.S.-Based MNC Is Borrowing Romanian Leu at an at an Interest

Multiple Choice

Exhibit 20-1
Assume a U.S.-based MNC is borrowing Romanian leu at an interest rate of 8 percent for one year. Also assume that the spot rate of the leu is $.00012 and the one-year forward rate of the leu is $.00010. The expected spot rate of the leu one year from now is $.00011.
-Refer to Exhibit 20-1 above. What is the effective financing rate for the MNC assuming it borrows leu on an uncovered basis?

A) about 10 percent
B) about -10 percent
C) about -1 percent
D) about -2 percent
E) None of these are correct.