QUESTION 5
Morning Star Air, headquartered in Kunming, China, needs US$25,000,000 for one year to finance working capital. The airline has two alternatives for borrowing:
a. Borrow US$25,000,000 in Eurodollars in London at 7.250% per annum
b. Borrow HK$39,000,000 in Hong Kong at 7.00% per annum, and exchange these Hong Kong dollars at the present exchange rate of HK$7.8/US$ 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? (In other words, calculate the breakeven)
			( Breakeven exchange rate (HK$ cost/US$ cost)