A Chinese company requires $US 5 million for one year to finance its working capital needs.  Two borrowing alternatives are available: 

1. Borrow $US 5 million in Eurodollars in London at 4% per annum
2. Borrow Hong Kong dollars $39 million in Hong Kong at 7% per annum and exchange these Hong Kong dollars at the present exchange rate of HK $7.8/US$ for US dollars to provide $US 5 million of financing

Explain under what circumstances you would advise the company to take the U.S. dollar loan rather than the Hong Kong dollar loan.

Answer rating: 100% (QA)

a US dollar loan and a Hong Kong dollar loan 1 Interest Rates Comparison Eurodollar Loan Borrow US 5 million in Eurodollars in London at 4 per annum Hong Kong Dollar Loan Borrow Hong Kong dollars 39 m... View the full answer