Possible effective financing rates of the overall portfolio

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Boyd Corp., a U.S. firm, considers obtaining 70% of its 30-day financing in Swiss francs (CHF) and 30% in Spanish pesetas (ESP). The forecasts of the appreciation (against the USD) of the CHF and ESP for the next 30-day period are as follows: Currency Possible ef Probability CHF 1% .35 CHF 2% .65 ESP 0% .60 ESP -1% .40 The 30-day interest rate on the CHF is 6%, the 30-day interest rate on the ESP is 7%, and the 30-day interest rate in the U.S. is 6.5%. Calculate the possible effective financing rates of the overall portfolio. Would you advise Boyd Corp. to obtain financing abroad or at home? (Justify your answer, considering borrowing in CHF only, ESP only, in the above mentioned 70-30 portfolio of currencies, and in USD only.)

Reference no: EM132411051

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