Assume a UK-Based MNC Is Borrowing Romanian Leu (ROL) at an Interest

Multiple Choice

Assume a UK-based MNC is borrowing Romanian leu (ROL) at an interest rate of 8 per cent for one year. Also assume that the spot rate of the leu is £0.00007 and the one-year forward rate of the leu is £0.0006. The expected spot rate of the leu one-year from now is £0.000065. What is the effective financing rate (to the nearest percent) for the MNC assuming it borrows leu on an uncovered basis?

A) about 10%.
B) about -10%.
C) about -1%.
D) about 0%.
E) None of the above