Question
Please show calculation. The treasurer of a Swiss company operating in New Zealand considers a one-year bank loan of 400,000 with an interest rate of
Please show calculation.
The treasurer of a Swiss company operating in New Zealand considers a one-year bank loan of 400,000 with an interest rate of 4.2% (euro based). The current spot rate is 1.6311/NZ$ and a local loan in New Zealand dollars (NZ$) would carry a rate of 4.0%. Expected inflation rates are 2.5% and 2.2% in New Zealand and in Europe, respectively, for the coming year.
According to purchasing power parity, what is the effective cost of NZ$ funds for the Swiss Company?
If the future spot rate is 1.6025/NZ$, what is the effective cost of NZ$ funds for the Swiss Company?
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