Information on current spot rates and interest rates are retrieved as follow:

Spot exchange rate (MYR/EUR) 4.8600

Spot exchange rate (MYR/NZD) 2.7500

Three-month MYR interest rate 4.00% p.a.

Three-month EUR interest rate 2.00% p.a.

Three-month NZD interest rate 6.00% p.a.

ENVY Berhad is considering to raise short-term foreign currency loans in euro (EUR) and New Zealand dollar (NZD) for three months to finance its working capital needs. It plans to borrow 65% in EUR and 35% in NZD. Required:

(i) Assume that international parity conditions hold, predict future spot exchange rates of MYR/EUR and MYR/NZD by the end of three months. Then, calculate the percentage change in spot rate for EUR and NZD against MYR respectively. (10 marks)

(ii) Calculate the portfolio effective financing rate for ENVY Berhad. Evaluate whether this portfolio of foreign currency loans is appropriate if ENVY Berhad is concern about the potential exchange rate risk. (10 marks)