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2. Foreign Financing: a. Explain how a firms degree of risk aversion enters into its decision of whether to finance in a foreign currency or

2. Foreign Financing:

a. Explain how a firms degree of risk aversion enters into its decision of whether to finance in a foreign currency or a local currency.

b. Assume that the interest rate parity exists. If the forward rate is an unbiased forecast of the future spot rate, explain the implications form borrowing a foreign currency (versus local financing) over time.

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