Exhibit 20-2
to Benefit from the Low Correlation Between the Canadian

question 36

Multiple Choice

Exhibit 20-2
To benefit from the low correlation between the Canadian dollar (C$) and the Japanese yen (¥) , Luzar Corporation decides to borrow 50% of funds needed in Canadian dollars and the remainder in yen. The domestic financing rate for a one-year loan is 7%. The Canadian one-year interest rate is 6% and the Japanese one-year interest rate is 10%. Luzar has determined the following possible percentage changes in the two individual currencies as follows:
$\begin{array}{lcc}\text { \underline{Cuntency} } & \text { \underline{Percentage Change }} & \text { \underline{Probability }} \\\text { Canadian dollar } & 2.0 \% & 30 \% \\\text { Canadian dollar } & 4.0 \% & 70 \% \\\text { Japanese yen } & -3.0\% & 60 \% \\\text { Japanese yen } & 1.0 \% & 40 \%\end{array}$
-Refer to Exhibit 20-2. What is the expected effective financing rate of the portfolio Luzar is contemplating (assume the two currencies move independently from one another) ?

• A)9.03%.
• B)7.00%.
• C)10.00%.
• D)7.59%.
• E)none of the above

Understand the rationale behind offering deep and wide assortments in a product portfolio.

Grasp the concept of geographic pricing and its application in business markets.

Recognize the evolving role of personal selling in modern marketing strategies.

Understand the implications of non-price competition strategies on market positioning.

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Definitions:

Market Rate of Interest

The prevailing rate of interest available in the market for investments of comparable risk and term.

Bond Indenture

A legal contract outlining the terms and conditions between the bond issuer and the bondholders.

Convertible Feature

A characteristic of some bonds or preferred stocks that allows them to be converted into a specified number of common shares, usually at the discretion of the holder.

Floating-rate Bond

A bond whose interest payments vary with market interest rates, as opposed to a fixed-rate bond.