Cameron Plc Would Like to Simultaneously Borrow Japanese Yen (¥)

question 41

Multiple Choice

Cameron plc would like to simultaneously borrow Japanese yen (¥) and Sudanese dinar (SDD) for a six-month period. Cameron would like to determine the expected financing rate and the variance of a portfolio consisting of 30 per cent yen and 70 per cent dinar. Cameron has gathered the following information: Mean effective financing rate of Japanese yen for six months 4 per cent Mean effective financing rate of Sudanese dinar for six months 1 per cent Standard deviation of Japanese yen's effective financing rate 0.10 Standard deviation of Sudanese dinar's effective financing rate 0.20 Correlation coefficient of effective financing rates of these two currencies 0.23 What is the expected financing rate of the portfolio contemplated by Cameron plc?

• A) 3.10%
• B) 1.90%
• C) 17.00%
• D) 13.00%
• E) None of the above

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Definitions:

Short-Term

Relating to or occurring over a short period of time, typically less than one year, often used in finance to describe assets or liabilities.

Long-Term

Refers to holding or considering an investment, obligation, or strategy for a duration that exceeds the short-term period, often years.

Alternative Scenarios

Different potential future events or conditions that are considered for planning, risk assessment, and strategic decision making.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without increasing its financial leverage or equity.