Chile Copper Mining Group, headquartered in Santiago, Chile, is one of the largest copper mining firms in the world. On January 1, when the spot exchange rate is CLP$930.25 = £1.00, the company borrows £30.0 million from a London bank for one year at 1.75 % interest (Chilean banks had quoted 5.68 % for an equivalent loan in Chilean pesos). During the year, the U.K. inflation rate is 2.1 % and Chilean inflation rate is 4.71 %. At the end of the year, the firm repays the pound loan.

a. If Chile Copper Mining Group expected the spot rate at the end of one year to be equal to purchasing power parity, what would be the cost to Chile Copper Mining Group of its pound loan in Chilean peso-denominated interest?

b. What is the real interest cost (adjusted for inflation)
to Chile Copper Mining Group, in Chilean peso-denominated terms, of borrowing the pounds for one year, again assuming purchasing power parity?

c. If the actual spot rate at the end of the year turned out to be CLP$900.15 = £1.00, what was the actual Chilean peso-denominated interest cost of the loan?