Question: Suppose that Sanders Co., a U.S.-based MNC. is considering options to finance its U.S. operations with a one-year loan. Sanders' bank offers a one- year

Suppose that Sanders Co., a U.S.-based MNC. is considering options to finance its U.S. operations with a one-year loan. Sanders' bank offers a one- year loan in U.S. dollars at an interest rate of 8.00%, a one-year loan in Canadian dollars at an interest rate of 3.00%, or a one year loan in Japanese yen at an interest rate of 4.00%. Sanders is considering borrowing a combination of both yen and Canadian dollars. When borrowing funds in foreign currencies, Sanders exposes itself to exchange rate nisk. Sanders forecasts that there are two possible outcomes for changes in the spot rate of each currency over the coming year. These outcomes are surmarized in the table that follows. Complete the last column of the table, filling in the effective financing rate for each currency under each outcome. Outcome for Percentage Change in Spot Probability of Effective Financing Rate for Currency Currency Rate Outcome Currency Canadian Dollar -1.00% 50.00% 2 Canadian Dollar 10.00% S0.00% 1 Japanese Yen -2.00% 60.00 2 Japanese Yen 8.009 40.00%

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