Question
7. (10 points) A company based in Bangkok, Thailand is considering two alternative loans offered from two different banks. The first is a loan of
7. (10 points) A company based in Bangkok, Thailand is considering two alternative loans offered from two different banks. The first is a loan of 1.7 billion Thai baht, which would be repaid in one year with 8% interest. The second is a loan of 50 million dollars, which would be repaid in one year with 11% interest. The exchange rate of Thai bahts per one U.S dollar is currently 33.5, but is expected to be 32.0 by the end of the one year period.
(a) Based on the expected exchange rate, what would be the baht-value of the interest paid with each of the two offers?
(b) Accounting for the expected change in exchange rates, which is the better offer?
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