5 Short-term financing analysis. Assume that Tilly Ltd needs £3 million for a one-year period. Within one year, it will generate enough British pounds to pay off the loan. It is considering three options: (1)

borrowing pounds at an interest rate of 6%, (2) borrowing Japanese yen at an interest rate of 3%, or (3)

borrowing Canadian dollars at an interest rate of 4%.

Tilly expects that the Japanese yen will appreciate by 1% over the next year and that the Canadian dollar will appreciate by 3%. What is the expected ‘effective’

financing rate for each of the three options?

Which option appears to be most feasible? Why might Tilly not necessarily choose the option reflecting the lowest effective financing rate?