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# FINANCE 4802 – A U.S. multinational company is considering whether to borrow British Pounds

## FINANCE 4802 – A U.S. multinational company is considering whether to borrow British Pounds

Question 1 [20 Marks]A U.S. multinational company is considering whether to borrow British Pounds for one year. It finds that the quoted interest rate for the British Pounds is 10 percent and the quoted rate for the U.S. dollar is 16 percent. It then develops a probability distribution for the British Pound’s possible percentage change in value over the life of the loan as follows:Possible rate of change in the British Pound over the life of the loan Probability of occurrence-5% 10%-2% 15%-1% 5%+1 20%+3% 15%+5% 10%+7% 15%+10% 10%(a) Calculate the effective financing rate for every possible rate of change in the BritishPound if it does occur.[10](b) Determine the expected financing rate of the British Pounds [5](c) Should the U.S. multinational company borrow U.S. dollars or British Pounds?Substantiate your answer. [5]Please assist by answering the question above due date 03/10/2016

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