To Benefit from the Low Correlation Between the Canadian Dollar

question 15

Multiple Choice

To benefit from the low correlation between the Canadian dollar (C$) and the Japanese yen (¥) , Martha ltd decides to borrow 50 per cent of funds needed in Canadian dollars and the remainder in yen. The domestic financing rate for a one-year loan is 7 per cent. The Canadian one-year interest rate is 6 per cent and the Japanese one-year interest rate is 10 per cent. Martha has determined the following possible percentage changes in the two individual currencies as follows: Currency
Percentage Change
Probability
Canadian dollar
2) 0%
30%
Canadian dollar
4) 0%
70%
Japanese yen
-3) 0%
60%
Japanese yen
1) 0%
40%
What is the expected effective financing rate of the portfolio Martha 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

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Definitions:

Palpation

The act of examining part of the body by touch, especially for the purpose of diagnosing disease or illness.

Percussing

A method in medical examinations where the surface of the body is tapped lightly to evaluate the condition of the organs underneath.

Abdominal Musculature

Refers to the muscles found in the abdomen area, responsible for posture, movement, and the protection of internal organs.

Obese Patient

An individual who has an excessive amount of body fat, often defined by a Body Mass Index (BMI) of 30 or higher.