Multiple Choice
Exhibit 20-1
Assume a U.S.-based MNC is borrowing Romanian leu (ROL) at an interest rate of 8% 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.
-Assume that interest rate parity holds between the U.S. and Cyprus. The U.S. one-year interest rate is 7% and the Cyprus one-year interest rate is 6%. What is the approximate effective financing rate of a one-year loan denominated in Cyprus pounds assuming that the MNC covered its exposure by purchasing pounds one year forward?
A) 6%.
B) 7%.
C) 1%.
D) cannot answer without more information
Correct Answer:
Verified
Correct Answer:
Verified
Q1: If interest rate parity exists, and the
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Q8: The variance in financing costs over time
Q9: Assume the U.S. interest rate is 7.5%,
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Q12: If interest rate parity exists, transactions costs
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Q15: If interest rate parity exists, financing with
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Q19: If all currencies in a financing portfolio