Question
Morning Star Air (China).Morning Star Air, headquartered in Kunming, China, needs US$21,000,000 for one year to finance working capital. The airline has two alternatives for
Morning Star Air (China).Morning Star Air, headquartered in Kunming, China, needs US$21,000,000 for one year to finance working capital. The airline has two alternatives for borrowing:
a. Borrow US$21,000,000 in Eurodollars in London at 7.30% per annum
b. Borrow HK$160,990,200 in Hong Kong at 7.00% per annum, and exchange these Hong Kong dollars at the present exchange rate of HK$7.6662/US$ 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?
Part 1
Morning Star Air would be indifferent between borrowing U.S. dollars and borrowing Hong Kong dollars if the ending exchange rate is HK$enter your response here/US$.
(Round to four decimal places.)
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