A negative effective financing rate indicates that an MNC:
A) paid only a small amount in interested over and above the amount borrowed.
B) has been negatively affected by a large appreciation of the foreign currency.
C) actually paid fewer dollars to repay the loan than it borrowed.
D) would have been better off borrowing in the U.S.

Question

Quizplus · Accepted Answer

A negative effective financing rate means that the MNC paid back fewer dollars than it borrowed. This can occur when the foreign currency appreciates significantly against the dollar during the loan period, resulting in the MNC needing to convert fewer dollars to repay the loan. While it may seem like a benefit, it also indicates potential currency risk for the MNC in the future.

A Negative Effective Financing Rate Indicates That an MNC