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On January Ist the wholly owned Brazilian subsidiary of VCB Limited (U.S.) borrows $1.5 million for one year at 8.60% interest. During the year, U.S.

image text in transcribed On January Ist the wholly owned Brazilian subsidiary of VCB Limited (U.S.) borrows $1.5 million for one year at 8.60% interest. During the year, U.S. inflation is 3% and Brazilian inflation is 12%. Over this same year, the value of the Brazilian reais, R$, changes from R$3.25/$ at the start of the year to R$2.80=$1,00 at the end of the year. At the end of the y sar the firrin repays the dollar loan. a. What is the cost to the Brazilian company of its dollar loan in reais-based interest? b. What is the real interest cost (adjusted for inflation) to the Brazilian firm, in realreais terms, of borrowing the dollars for one year

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