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1. Assume that the interest rate in New Zealand is 9 percent. A U.S. firm plans to borrow New Zealand dollars, convert them to U.S.

1. Assume that the interest rate in New Zealand is 9 percent. A U.S. firm plans to borrow New Zealand dollars, convert them to U.S. dollars, and repay the loan in 1 year. What will be the effective financing rate if the New Zealand dollar depreciates by 6 percent? If the New Zealand dollar appreciates by 3 percent?

2. Using the information in question 1 and assuming a 50 percent chance of either scenario occurring, determine the expected value of the effective financing rate.

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