Morning Star Air, headquartered in Kunming, China, needs US$25,000,000 for one year to finance working capital. The

Question:

Morning Star Air, headquartered in Kunming, China, needs US$25,000,000 for one year to finance working capital. The airline has two alternatives for borrowing:

Borrow US$25,000,000 in Eurodollars in London at 7.250% per annum

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$7.8/US$ 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?

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...