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What is the singapore dollar cost of this debt

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Reference no: EM133005114

Question - Aluminika Starsing. Ltd is one of largest aluminium producing companies in Singapore. The company borrows £800,000 from a British bank at 8.5% interest at a time when the exchange rate is SG$ 20,000/£.

Required -

1. Case I: the duration of the loan is a year. What is the Singapore dollar(SG$) cost of this debt if the pound depreciates from SG$ 20,000/£ to SG$ 19,000/£ over the year? And if the pound appreciates to SG$ 22,500/£ over the year?

2. Case II: the duration of the loan is three years. The entire principal of the loan is to be repaid within three years, while the interest is paid annually in pounds. If pound is expected to appreciate against SG$ at 6% per annum, calculate the internal rate of return of this loan for Aluminika Starsing. Ltd?

Reference no: EM133005114

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