Raleigh Corp. needs to borrow funds for one year to finance an expenditure in the United States.

Question:

Raleigh Corp. needs to borrow funds for one year to finance an expenditure in the United States. The following interest rates are available: expenditure
Borrowing Rate
United States ....... 10%
Canada ....... .... 6
Japan .......... 5
The percentage changes in the spot rates of the Canadian dollar and Japanese yen over the next year are as follows:

If Raleigh Corp. borrows a portfolio, 50 percent of funds from Canadian dollars and 50 percent of funds from yen, determine the probability distribution of the effective financing rate of the port folio. What is the probability that Raleigh will incur a higher effective financing rate from borrowing this portfolio than from borrowing U.S.dollars?

Distribution
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