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A U.S. firm plans to borrow Swiss francs today for a one year period. The Swiss interest rate is 9%. It uses today's spot rate as a forecast for the franc's spot rate in one year. The U.S. one year interest rate is 10%. The expected effective financing rate on Swiss francs is:
A) equal to the U.S. interest rate.
B) less than the U.S. interest rate, but more than the Swiss interest rate.
C) equal to the Swiss interest rate.
D) less than the Swiss interest rate.
E) more than the U.S. interest rate.

Answer: C) equal to the Swiss interest rate.

The expected financing on Swiss franc would be equal to the Swiss interest rate = 9%
This is because the Swiss currency is not changing in value (neither appreciating nor depreciating)

"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?
"
A) about 1.7%.
B) about 0.0%.
C) about 14.7%.
D) about 15.4%.
E) about 8.3%.

Answer: B) about 0.0%.

Depreciation of NZ currency= -7.69% =(0.48-0.52)/0.52
NZ$ interest rate= 6.50%

Effective interest rate = -1.69% =(1+0.065) x( 1-0.0769) - 1
The nearest answer is 0%

Let us illustrate with the help of an example
Take a loan of NZ$ 100,000
Amount to be paid back at an interest rate of 6.50% =NZ$ 106,500

NZ$ 100,000 can be converted at the spot rate of $0.52 into $52,000
NZ$ 106,500 when converted at the spot rate of $0.48 requires $51,120

Thus effectively $52,000 is borrowed for a year and $51,120 is returned at the end of 1 year
Thus interest rate = -1.69% =(51120-52000)/52000
Or negative interest rate
The nearest answer is 0%