Aluminika Starsing.Ltd is one of largest aluminium producing companies in Indonesia. The company borrows £800,000 from a British bank at 8.5% interest at a time when the exchange rate is IDR 20,000/£. 

Question 1: 

Case I: The duration of the loan is a year. What is the Rupiah cost of this debt if the pound depreciates from IDR20,000/£ to IDR19,000/£ over the year? And if the pound appreciates to IDR22,500/£ over the year? 

 

Question 2:

Case II:Case: The duration of the loan is three years. The entire principal of the loan is to be repaid within three years, while the interest is paid annually in pounds. If pound is expected to appreciate against IDR at 6% per annum, calculate the internal rate of return of this loan for Aluminika Starindo.Ltd?