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A European borrower borrows $5,000,000 from an American bank for one year. The interest rate is 7%. The exchange rate at the start of the
A European borrower borrows $5,000,000 from an American bank for one year. The interest rate is 7%. The exchange rate at the start of the year is $1.16/ and is $1.13/ at the end of the year. What is the European borrowers EUR-denominated equivalent cost of borrowing? Please answer in PERCENT form, to two decimal places like 7.56%. Hint: The Euro depreciates, making it more costly to the European borrower to pay back dollar-denominated principal and interest. So, your answer must be ABOVE 7%. Right?
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