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Calculate the cost of repaying loan

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Star Airlines, headquartered in Beijing, China, needs US$25,000,000 for one year to finance working capital. The airline has two alternatives for borrowing. Calculate the cost of repaying each loan:

a. Borrow US$25,000,000 in Euro dollars 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.

c. At what ending exchange rate would Star Airline be indifferent between borrowing U.S. dollars and borrowing Hong Kong dollars?

Reference no: EM133070002

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