Cameron Corporation Cameron Plc Would Like to Simultaneously Borrow Japanese

question 25

Multiple Choice

Cameron Corporation 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% yen and 70% dinar. Cameron has gathered the following information: Mean effective financing rate of Japanese yen for six months 4% Mean effective financing rate of Sudanese dinar for six months 1% Standard deviation of Japanese yen's effective financing rate .10 Standard deviation of Sudanese dinar's effective financing rate .20 Correlation coefficient of effective financing rates of these two currencies .23 What is the expected standard deviation of the portfolio contemplated by Cameron?

• A) 2.24%
• B) 14.98%
• C) 2.89%
• D) 17.00%
• E) None of the above

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Definitions:

Time-inconsistency

Time-inconsistency refers to the tendency of individuals or governments to change their plans about what they believe will be the best course of action in the future, often leading to inconsistencies in policy or personal decision-making.

Inflation Target

Commitment of central bankers to keep inflation below a certain rate for the next year or two.

Federal Reserve

The central banking system of the United States, responsible for setting monetary policy, regulating banks, maintaining financial stability, and providing financial services.

Swiss National Bank

The central bank of Switzerland, responsible for the country's monetary policy and issuing its currency.