Assume the UK financing rate is 10 per cent and that the financing rate in Germany is 9 per cent. An MNC would be indifferent between financing in pounds and financing in euros next year if the euro is expected to ____.

Question

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The MNC would be indifferent if the cost of financing in both currencies is the same. The UK rate is 10%, and the German rate is 9%. To equalize the cost, the euro must appreciate by the difference in rates, which is 1% (10% - 9%). The formula for appreciation is (1 + foreign rate) / (1 + domestic rate) - 1, which gives approximately 0.92% appreciation.

Assume the UK Financing Rate Is 10 Per Cent and That