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An American firm borrows Euro 1 million for one year at an interest rate of...

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Finance

An American firm borrows Euro 1 million for one year at an interest rate of 2.5%. The Euro is expected to appreciate by 2% over the life of the loan. The American's effective cost of borrowing is approximately:

a. 2.5%

b. 4.5%

c. 2.0%

d. .5%

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