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Question
A multinational firm can borrow 5 million Canadian dollars from a Canadian bank at 9 percent for one year and the same in U.S. dollars at a Detroit bank at 8 percent. If the C$/U.S.$ one-year forward rate contract was priced at 1.344, which loan was more favorable to the borrower?a. The cost of the loan from the U.S. bank is lower.
b. The cost of the loan from the Canadian bank is lower.
c. The borrower is indifferent between the two at the forward rate of 1.344.
d. The solution cannot be calculated from the information above.
Answer
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