Question
Suppose that on January 1 a firm in Mexico borrows $20 million from Citibank (USA) for one year at 8.00% interest per annum. During the
Suppose that on January 1 a firm in Mexico borrows $20 million from Citibank (USA) for one year at 8.00% interest per annum. During the year U.S. inflation is 2.00% and Mexican inflation is 12.00%. The loan was taken when the spot rate was Peso 3.40/US$. At the end of the one year loan period the exchange rate was Peso 5.80/US$.
Based on the above information, what is the cost to the firm of the loan in Mexican peso's (percent)?
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Principles Of Finance
Authors: Besley, Scott Besley, Eugene F Brigham, Brigham
4th Edition
0324655886, 9780324655889
