Question $4$

Morning Star Air, headquartered in Kunming, China, needsUS$$25,000,000$ for one year to

finance working capital. The airline has two alternatives for borrowing:

a$.$ BorrowUS$ $25,000,000$ in Eurodollars in London at $7\mathrm{.}25\%$ per annum

b$.$ BorrowHK$ $195,000,000$ in Hong Kong at $7\mathrm{.}00\%$ per annum, and exchange these Hong

Kong dollars at the present exchange rate ofHK$ $7\mathrm{.}8000/$US$ for U$.$S$.$ dollars.

At what ending exchange rate $($HK $$/$USD$)$ would Morning Star Air be indifferent between

borrowing U$.$S$.$ dollars and borrowing Hong Kong dollars? Note: do not round intermediate

steps. Round the final answer to four decimal places.