Question
Morning Star Air (China). Morning Star Air, headquartered in Kunming, China, needs US$21 comma 000 comma 00021,000,000 for one year to finance working capital. The
Morning Star Air (China). Morning Star Air, headquartered in Kunming, China, needs US$21 comma 000 comma 00021,000,000 for one year to finance working capital. The airline has two alternatives for borrowing: a. Borrow US$21 comma 000 comma 00021,000,000 in Eurodollars in London at 7.357.35% per annum b. Borrow HK$160 comma 072 comma 500160,072,500 in Hong Kong at 7.107.10% per annum, and exchange these Hong Kong dollars at the present exchange rate of HK$7.62257.6225/US$ for U.S. dollars. At what ending exchange rate would Morning Star Air be indifferent between borrowing U.S. dollars and borrowing Hong Kong dollars?
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