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(8) A US firm has the following two financing alternatives to its UK branch: (a) Issue a bond in sterling that costs 8.5% (annually) (b)

(8) A US firm has the following two financing alternatives to its UK branch:

(a) Issue a bond in sterling that costs 8.5% (annually)

(b) Issue a bond in US dollar that costs 6% (annually)

Which alternative should be chosen by the US firm if you know that the sterling would depreciate by 2%?

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