Effective financing rate greensboro

Reference no: EM131042603

Effective Financing Rate Greensboro, Inc., needs $4 million for 1 year. It currently has no business in Japan but plans to borrow Japanese yen from a Japanese bank because the Japanese interest rate is 3 percentage points lower than the U.S. rate. Assume that interest rate parity exists; also assume that Greensboro believes that the 1-year forward rate of the Japanese yen will exceed the future spot rate 1 year from now. Will the expected effective financing rate be higher, lower, or the same as financing with dollars? Explain.

Reference no: EM131042603

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