Exhibit 20-2 To Benefit from the Low Correlation Between the Canadian Dollar

Multiple Choice

Exhibit 20-2
To benefit from the low correlation between the Canadian dollar (C$) and the Japanese yen (¥) , Luzar Corporation decides to borrow 50% of funds needed in Canadian dollars and the remainder in yen. The domestic financing rate for a one-year loan is 7%. The Canadian one-year interest rate is 6% and the Japanese one-year interest rate is 10%. Luzar has determined the following possible percentage changes in the two individual currencies as follows:

-Refer to Exhibit 20-2. What is the expected effective financing rate of the portfolio Luzar is contemplating (assume the two currencies move independently from one another) ?

A) 9.03%.
B) 7.00%.
C) 10.00%.
D) 7.59%.
E) none of the above