Financing with a Portfolio Raleigh Corp. needs to borrow funds for 1 year to finance an expenditure in the United States. The following interest rates are available:
The percentage changes in the spot rates of the Canadian dollar and Japanese yen over the next year are as follows
f Raleigh Corp. borrows a portfolio that has 50 percent of funds from Canadian dollars and 50 percent of funds from yen, determine the probability distribution of the effective financing rate of the portfolio. What is the probability that Raleigh will incur a higher effective financing rate from borrowing this portfolio than from borrowing U.S. dollars?