Assume the U.S. interest rate is 7.5%, the New Zealand interest rate is 6.5%, the spot rate of the NZ$ is $.52, and the one year forward rate of the NZ$ is $.50. At the end of the year, the spot rate is $.48. Based on this information, what is the effective financing rate for a U.S. firm that takes out a one year, uncovered NZ$ loan? SHOW ALL WORK
A) about –1.7%.
B) about 0.0%.
C) about 14.7%.
D) about 15.4%.
E) about 8.3%.