What should ms manufacturing do to minimize

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The MS Manufacturing Company, a Canadian company, borrowed $100,000 US from the Bank of America; the loan carried an interest rate of 12% and the exchange rate at the time the funds were advanced was $0.7875 US to $1 Canadian. The principal and interest were repaid exactly one year later, when the exchange rate was $1 US equals $1.3225 Canadian.

Required:

Problem a) What was the actual rate of interest paid by MS Manufacturing Company on the loan?

Problem b) Assume the rate of interest on one year loans from Canadian sources is 15%. If the one year forward rate on the date the U.S. funds were advanced was $0.7725 US to $1 Canadian, what should MS Manufacturing do to minimize their borrowing costs?

Reference no: EM132811461

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