A negative effective financing rate indicates that an MNC:
A) paid only a small amount in interested over and above the amount borrowed.
B) has been negatively affected by a large appreciation of the foreign currency.
C) actually paid fewer dollars to repay the loan than it borrowed.
D) would have been better off borrowing in the U.S.

Question

Quizplus · Accepted Answer

A negative effective financing rate means that the MNC paid back fewer dollars than it borrowed. This can occur if the interest rate on the foreign currency borrowed is lower than the expected depreciation of that currency over the loan period. Therefore, choice C is the best answer.

A Negative Effective Financing Rate Indicates That an MNC