Question
5. (15 points) An American company based in New York borrowed 40 million Swiss francs from a Swiss bank. The loan was to be repaid
5. (15 points) An American company based in New York borrowed 40 million Swiss francs from a Swiss bank. The loan was to be repaid in francs one year later, with 7% interest. The exchange rate at the time the loan was made was 1.08 dollars per one Swiss franc. However, the exchange rate changed to 1.06 dollars per franc over the next year.
(a) In dollar terms, what was the value of the amount received as a loan (using the exchange rate at the time it was received)?
(b) What was the dollar value of the amount paid back (including the principal and interest) given the exchange rate at the time the payment was made?
(c) What is the cost of debt in percent that is implied by your answers to part (a) and part (b)? [i.e. the percent by which the value of the repayment turned out to exceed the value received]
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