Assume the U.S. one-year interest rate is 8 percent, and the British one-year interest rate is 6 percent. The one-year forward rate of the pound is $1.97. The spot rate of the pound at the beginning of the year is $1.95. By the end of the year, the pound's spot rate is $2.05. Based on the information, what is the effective financing rate for a U.S. firm that takes out a one-year, uncovered British loan?

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The effective financing rate for the U.S. firm using an uncovered British loan can be calculated by considering the initial loan amount in pounds, the interest paid in pounds, and the change in the value of the pound against the dollar over the loan period. The firm borrows pounds at the beginning, pays interest in pounds, and then converts the pounds back to dollars at the end of the year at the new spot rate. The effective financing rate reflects the cost of borrowing in terms of the initial dollar amount.Given:- Initial spot rate = $1.95/£- Final spot rate = $2.05/£- British interest rate = 6%The firm borrows £1 at the beginning of the year. By the end of the year, it owes £1.06 due to the 6% interest rate. The cost in dollars to repay this loan at the end of the year is £1.06 * $2.05/£ = $2.173.The initial dollar amount equivalent to the borrowed amount is £1 * $1.95/£ = $1.95.The effective financing rate is calculated as: [(Final amount in $ - Initial amount in $) / Initial amount in $] * 100 = [($2.173 - $1.95) / $1.95] * 100 ≈ 11.4%.Therefore, the effective financing rate for the U.S. firm taking out the one-year, uncovered British loan is about 11.4 percent.