Exhibit 20-1 Assume a U.S.-Based MNC Is Borrowing Romanian Leu at an at an Interest

question 42

Multiple Choice

Exhibit 20-1
Assume a U.S.-based MNC is borrowing Romanian leu at an interest rate of 8 percent 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.
-Refer to Exhibit 20-1 above. What is the effective financing rate for the MNC assuming it borrows leu on an uncovered basis?

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

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Definitions:

Submucosa

Layer of tissue in the digestive tract lying just beneath the mucosa, containing blood vessels, nerves, and glands.

Serosa

Another term for serous membrane, the smooth tissue lining certain internal cavities of the body.

Chyme

The semi-fluid mass of partly digested food that moves from the stomach to the small intestine.

Enamel

The hard, protective outer layer of the tooth, made primarily of minerals and the hardest material in the human body.