Mc Dougan Associates, a U.S.-based investment partnership, borrows 80,000,000 at a time when the exchange rate is

Question:

Mc Dougan Associates, a U.S.-based investment partnership, borrows €80,000,000 at a time when the exchange rate is $1.3460/€. The entire principal is to be repaid in three years, and interest is 6.250% per annum, paid annually in euros. The euro is expected to depreciate vis à vis the dollar at 3% per annum. What is the effective cost of this loan for Mc Dougan?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...