19 Financing with a portfolio. Raleigh Ltd needs to borrow funds for one year to finance an expenditure in the United States. The following interest rates are available:

The percentage changes in the spot rates of the Canadian dollar and Japanese yen over the next year are as follows:

If Raleigh Ltd borrows a portfolio, 50% of funds from Canadian dollars and 50% of funds from yen, determine the probability distribution of the effective financing rate of the portfolio. What is the probability that Raleigh will incur a higher effective financing rate from borrowing this portfolio than from borrowing US dollars?

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US Canada Japan Borrowing Rate 10% 6 5