Question
Mili Pharmaceuticals is based in New Delhi, India, and has a 4-year contract to produce chemicals at a production facility located in Delaware, United States
Mili Pharmaceuticals is based in New Delhi, India, and has a 4-year contract to produce chemicals at a production facility located in Delaware, United States of America. Mili received $80,000 per year and is concerned about the exchange risk she will bear exchanging US Dollars (USD) to Indian Rupees (INR) over this period. Luckily, Neel Aeronautics, a US firm doing business with India, has the exact opposite currency exposure. Mili and Neel agree to a currency swap in order to hedge their exchange risk. Assume the US risk free rate is 2%, the Indian risk-free rate is 2.8%, and the exchange rate between USD ($) and INR () is 80.00/$ (80.00 Rupees can be exchanged for 1 USD). (3 points)
rus = 0.02 , rin = 0.028 , S0 = 80.00 /$
Mili wants to borrow this amount of USD, convert it to INR at today's spot rate, and lend it to Neel. What is her loan to Neel in INR?
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