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Cost to the firm of the loan in mexican peso

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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)?

(a) 8.00%

(b) 20.00%

(c) 45.72%

(d) 84.24%

Can you give me an answer and show me your work detail?

Reference no: EM131627063

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