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Argosy Associates, a U. S.-based investment partnership, borrows €80,000,000 at a time when the exchange rate is $1.2/€. The entire principal is to be repaid in two years, and interest is 6% per annum, paid annually in euros. Suppose that the one year forward rate is F1=$1.30/€ and the two year forward rate is F2=$1.40/€. What is the effective dollar cost of this loan if you hedge all payments in the forward market? Assume zero fees! (Assume annual compounding.)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91785013

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