Suppose that Coleman Co., a U.S.-based MNC, is seeking a one-year loan to finance its operations in the United States. While it can borrow U.S. dollars at an annual rate of 12.00% from its bank, that same bank also offers a loan in Canadian dollars at a rate of 5.00%. If Coleman chooses the loan in Canadian dollars, it would need to convert those Canadian dollars to U.S. dollars immediately to finance operations, and then it would need to convert U.S. dollars to Canadian dollars in one year in order to repay the loan.

 Suppose that Coleman forecasts that the Canadian dollar will depreciate by 1.00% relative to the U.S. dollar over the next year.

 Given the current rate on the Canadian dollar loan, as well as the expected depreciation of the Canadian dollar, calculate Coleman's effective financing rate on the Canadian dollar loan.

Answer rating: 100% (QA)

To calculate Colemans effective financing rate on the Canadian dollar loan we need to consider both the interest rate on the loan and the expected cur... View the full answer