Assume the U.S. financing rate is 10 percent and that the financing rate in Germany is 9 percent. An MNC would be indifferent between financing in dollars and financing in euros next year if the euro is expected to ____.

Question

Quizplus · Accepted Answer

The MNC would be indifferent if the cost of financing in both currencies is the same. With a 10% U.S. rate and a 9% German rate, the euro must appreciate by approximately 0.92% to equalize the effective cost of financing.