(Answered) Question morning star air china morning star air

Management Studies

Question: Morning Star Air (China). Morning Star Air, headquartered in Kunming, China, needs $25,000,000 for one year to finance working capital. The airline has two alternatives for borrowing: a. Borrow $25,000,000 in eurodollars 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$7.8/$ for U.S. dollars. At what ending exchange rate would Morning Star Air be indifferent between borrowing U.S. dollars and borrowing Hong Kong dollars?

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