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

question 22

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 probability that the financing rate of the two-currency portfolio is less than the domestic financing rate?

• A)12%.
• B)30%.
• C)100%.
• D)0%.
• E)none of the above

---

Definitions:

Figure And Background Relations

The perceptual grouping of visual elements into a 'figure' that stands out from a less distinct 'background', essential for object recognition.

Bottom-Up Processing

Bottom-Up Processing is a cognitive approach where perception starts with an incoming stimulus and builds up towards more complex representation, emphasizing sensory data's role in perception.

Line Segment

A part of a line that is bounded by two distinct end points, and contains every point on the line between its endpoints.

Top-Down

A processing approach that starts with higher cognitive functions to guide perception or actions based on knowledge or expectations.