3. Probability Distribution. a. Discuss the development of a probability dis- tribution of effective financing rates when financ- ing in a foreign currency. How is this distribution developed? b. Once the probability distribution of effective financing rates from financing in a foreign currency is developed, how can this distribution be used in deciding whether to finance in the foreign currency or the home currency?
3. Probability Distribution.
a. Discuss the development of a probability dis- tribution of effective financing rates when financ- ing in a foreign currency. How is this distribution developed?
b. Once the probability distribution of effective financing rates from financing in a foreign currency is developed, how can this distribution be used in deciding whether to finance in the foreign currency or the home currency?
a) When financing in foreign currency, the first step is creating a probability distribution of exchange rate changes. Along with this with the help of the interest rate that is quoted in foreign currency is used in order to develop a probability distribution of financing rates.
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