1. Briefly explain TWO factors which can affect the cost of capital of multinational firms. (2 Points)
2. How is it possible for a firm to incur a negative effective financing rate when borrowing from foreign sources? (2 Points)
3. City Cable Ltd needs Japanese yen (JPY) to fund a special purchase from Japan. Assume that the local one year Australian dollar (AUD) loan rate is 4.50%, while a one year loan rate on JPY is 2.10%. By how much must the JPY should appreciate to cause the loan in JPY to be more costly than a AUD loan (hint: use IRP)? (2 points)
4. Missoula Ltd decides to borrow Japanese yen for one year. The interest rate on the borrowed yen is 8 percent. Missoula has developed the following probability distribution for the yens degree of fluctuation against the pound:

Possible degree of fluctuation of Yen against the pound	Percentage Probability
4%	20%
1	30
0	10
3	40

Given this information, what is the expected value of the effective financing rate of the Japanese yen from Missoulas perspective? (4 Points)