Assume a U

question 29

Multiple Choice

Assume a U.S.-based MNC is borrowing Romanian leu (ROL) at an interest rate of 8% for one year.Also assume that the spot rate of the leu is $.00012 and the one-year forward rate of the leu is $.00010.The expected spot rate of the leu one-year from now is $.00011.What is the effective financing rate for the MNC assuming it borrows leu on an uncovered basis

• A) about 10%.
• B) about -10%.
• C) about -1%.
• D) about -2%.
• E) none of the above

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