When an Australian firm borrows a foreign currency in which it has no offsetting position, the effective financing rate will be lower than the:

Question

Quizplus · Accepted Answer

CWhen an Australian firm borrows in a foreign currency and that currency depreciates, the effective financing rate is lower than the foreign interest rate because the firm will repay the loan with cheaper currency. Similarly, if the domestic currency depreciates, the effective rate is lower than the domestic interest rate because the cost of borrowing in foreign currency becomes relatively cheaper compared to borrowing in the domestic market.

When an Australian Firm Borrows a Foreign Currency in Which