3. (10 points) XYZ Associates Inc. based in New York borrowed 12,000,000 for 3 years at a rate of 6% per annum. The spot rate at the beginning of the loan is $1.27/. If the pound appreciates 1% in the first year, and 3% during the next two years, what is the effective US dollar cost in % of this debt? (Assume XYZ borrowed the pounds to convert them to dollars and use as a dollar loan. Also assume this is a non-amortizing loan). Why is the effective rate in dollars higher or lower than the 6%