An Australian Firm Goes to the US to Borrow Because

question 56

Multiple Choice

An Australian firm goes to the US to borrow because US interest rates are only 3% compared with 6.5% in Australia.The transaction is fully hedged using an FX swap.What will be the effective cost of funds?

• A)3%
• B)More than 3%, but less than 6.5%
• C)6.5%
• D)It depends on the spot exchange rate.
• E)This cannot be determined with the information provided.

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