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

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Definitions:

Short Tempered

A tendency to become angry quickly or easily.

Uncooperative

Displaying reluctance or refusal to work or act together with others in a cooperative or collaborative manner.

Agreeableness

A personality trait that reflects the extent to which a person is cooperative, polite, friendly, and flexible versus cold, contentious, and confrontational.

Intellectual Openness

A willingness to consider new ideas, engage in critical thinking, and adopt novel approaches in learning and problem-solving.