Exhibit 20-1 Assume a U.S.-Based MNC Is Borrowing Romanian Leu (ROL) at (ROL)

question 55

Multiple Choice

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

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

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Definitions:

Liability-revenue Relationship

A financial concept that examines the connection between a company's incurred liabilities and the revenue generated over a certain period.

Deferred Revenue

Revenue recorded by a corporation for products or services that have not yet been provided or executed, classified as an obligation.

Accrued Revenue

Income earned but not yet received or recorded at the end of the accounting period.

Shareholders' Equity

The residual interest in the assets of a company after deducting its liabilities, representing the ownership stake of the shareholders.