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

question 31

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 £0.00005. The expected spot rate of the leu one-year from now is £0.00006. What is the effective financing rate (to the nearest percent) for the MNC assuming it borrows leu on a covered basis?

• A) 10%.
• B) -23%.
• C) -1%.
• D) 1%.
• E) None of the above

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Definitions:

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