A U.S. based firm makes a short term borrowings denominated in £ from a bank in U.K.
The quoted interest rate on this loan is 5.75%. If the spot exchange rate of U.S.$ at the time of taking loan was £0.82 and at the time of expiration was £0.79, compute the effective financing cost.
9.36%
1.88%
3.80%
9.77%