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 oneyear 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 The following table shows the effective financing rate for each currency in each outcome Sanders assumes that the outcome for the Canadian dollar spot rate is independent of the outcome of the Japanese yen spot rate Outcome for Currency Currency Percentage Change in Spot Rate Probability of Outcome Effective Financing Rate for Currency 1 Canadian Dollar 1 00 50 00 1 97000 2 Canadian Dollar 10 00 50 00 13 30000 1 Japanese Yen 2 00 60 00 1 92000 2 Japanese Yen 8 00 40 00 12 32000 Suppose that Sanders decides to allocate 50 00 of its portfolio to Canadian dollars and 50 00 of its portfolio to Japanese yen Since each of the two currencies has two possible outcomes, there are four total scenarios for Sanders to consider These four scenarios are summarized in the following table Complete the third column of the table, filling in the joint probability of each scenario Then complete the fourth column of the table, filling in the effective financing rate in each scenario (attached) Possible Joint Financing Rates Scenario Canadian Dollar Japanese Yen Joint Probability of Scenario Effective Financing Rate for Portfolio 1 1 92000 2 12 32000 3 1 97000 1 97000 13 30000 13 30000 1 92000 12 32000 100

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 oneyear loan

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.

The following table shows the effective financing rate for each currency in each outcome. Sanders assumes that the outcome for the Canadian dollar spot rate is independent of the outcome of the Japanese yen spot rate.

Outcome for Currency	Currency	Percentage Change in Spot Rate	Probability of Outcome	Effective Financing Rate for Currency
1	Canadian Dollar	-1.00%	50.00%	1.97000%
2	Canadian Dollar	10.00%	50.00%	13.30000%

1	Japanese Yen	-2.00%	60.00%	1.92000%
2	Japanese Yen	8.00%	40.00%	12.32000%

Suppose that Sanders decides to allocate 50.00% of its portfolio to Canadian dollars and 50.00% of its portfolio to Japanese yen.

Since each of the two currencies has two possible outcomes, there are four total scenarios for Sanders to consider. These four scenarios are summarized in the following table.

Complete the third column of the table, filling in the joint probability of each scenario. Then complete the fourth column of the table, filling in the effective financing rate in each scenario (attached) Possible Joint Financing Rates Canadian Dollar Japanese Yen Scenario Joint Probability of Scenario Effective Financing Rate f

Possible Joint Financing Rates Scenario Canadian Dollar Japanese Yen Joint Probability of Scenario Effective Financing Rate for Portfolio 1 1.92000% 2 12.32000% 3 1.97000% 1.97000% 13.30000% 13.30000% 1.92000% 12.32000% 100% % % % %

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