QUESTION 10

1. A firm forecasts the euro's value as follows for the next year:

   Possible
   Percentage Change	Probability
   2%	10%
   3%	50%
   6%	40%

   The annual interest rate on the euro is 7 percent. The expected value of the effective financing rate from a U.S. firm's perspective is about:

   	a.	11.541 percent
   	b.	10.959 percent
   	c.	8.436 percent.
   	d.	11.112 percent

1.5 points

QUESTION 11

1. Assume the U.S. interest rate is 7.5 percent, the New Zealand interest rate is 6.5 percent, the spot rate of the NZ$ is $.52, and the one-year forward rate of the NZ$ is $.50. At the end of the year, the spot rate is $.48. Based on this information, what is the effective financing rate for a U.S. firm that takes out a one-year, uncovered NZ$ loan?

   	a.	about 15.4 percent
   	b.	about 1.7 percent
   	c.	about 0.0 percent
   	d.	about 14.7 percent

1.5 points

QUESTION 12

1. Assume Jelly Corporation, a U.S.-based MNC, obtains a one-year loan of 1,500,000 Malaysian ringgit (MYR) at a nominal interest rate of 7 percent. At the time the loan is extended, the spot rate of the ringgit is $.25. If the spot rate of the ringgit in one year is $.28, the dollar amount initially obtained from the loan is $____, and the MNC needs $____ to repay the loan.

   	a.	5,357,143; 6,000,000
   	b.	449,400; 375,000
   	c.	375,000; 449,400
   	d.	6,000,000; 5,357,143