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

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Definitions:

Qualitative Model

A model that uses non-numerical data to analyze phenomena and provides insights based on qualities rather than quantities.

Demand Forecast

The process of estimating the future demand for a product or service based on historical data and analysis.

Perceived Status Differences

The assumption or belief regarding the ranking or importance of individuals or groups relative to others.

Nominal Group Technique

A structured method for group brainstorming that encourages contributions from everyone in the group by giving them equal opportunity to participate.