Suppose that on january 1 a firm in mexico borrows 20, Ask an Expert

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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)?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92850482

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