Morning Star Air, headquartered in Kunming, China, needs US$23,000,000 for one year to finance working capital. The airline has two alternatives for borrowing:

a. Borrow US$23,000,000 in Eurodollars in London at 7.20% per annum

b. Borrow HK$181,771,300 in Hong Kong at 7.00% per annum, and exchange these Hong Kong dollars at the present exchange rate of HK$7.9031/US$ 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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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.)

a. Borrow US$23,000,000 in Eurodollars in London at 7.20% per annum

b. Borrow HK$181,771,300 in Hong Kong at 7.00% per annum, and exchange these Hong Kong dollars at the present exchange rate of HK$7.9031/US$ for U.S. dollars.