Assume that the U.S. interest rate is 7 percent and the euro’s interest rate is 4 percent. Assume that the euro’s forward rate has a premium of 2 percent. a. What is the effective financing rate from financing with euros? Should a U.S. firm finance with euros?
Assume that the U.S. interest rate is 7 percent and the euro’s interest rate is 4 percent. Assume that the euro’s forward rate has a premium of 2 percent. a. What is the effective financing rate from financing with euros? Should a U.S. firm finance with euros?
Chapter21: International Cash Management
Section: Chapter Questions
Problem 5ST
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Assume that the U.S. interest rate is 7 percent and the euro’s interest rate is 4 percent. Assume that the euro’s forward rate has a premium of 2 percent.
a. What is the effective financing rate from financing with euros? Should a U.S. firm finance with euros?
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