A U.S. firm must borrow $1 million to meet operating needs for one year. A U.S. bank offers a 1-year loan at 5% interest. A U.K. bank is willing to lend (in pounds) for one year at 8%, and a Canadian bank offers a loan (denominated in Canadian dollars) at 7%. In all cases, the U.S. firm will repay the loan in a lump sum at the end of the year. If it borrows from a foreign lender, the firm will hedge its currency exposure with a forward contract. The current spot and 1-year forward exchange rates are as follows: ,,, Foreign Currency per US$ ,Country Spot 1-Year Forward ,Canada 1.1922 1.1802 ,United Kingdom 0.5760 0.5772 ,,,Which loan should the firm accept?,,cananda? UK? US? ,
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