Question
6. (10 points) A company based in Seoul, South Korea considered two alternative loans offered from two different banks. At the time, the exchange rate
6. (10 points) A company based in Seoul, South Korea considered two alternative loans offered from two different banks. At the time, the exchange rate of South Korean wons () per one U.S dollar was 1200/$. The first was a loan of 50 million dollars, which would be repaid in one year with 6% interest. The second was a loan of 60 billion won, which would be repaid in one year with 8% interest. The companys management eventually decided to choose the first offer. One year later, the debt was paid back when the exchange rate was 1230 wons per one dollar. In retrospect, would the company be better off choosing the other loan instead of the one that was chosen? What turned out to be the Korean won value of the difference between the two alternatives?
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