A company in the United States is considering borrowing $5,000,000 in Japanese yen to fund a project.
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Question:
A company in the United States is considering borrowing $5,000,000 in Japanese yen to fund a project. The current spot exchange rate is 110 JPY/USD. The company expects the yen to appreciate to 105 JPY/USD in 6 months. The interest rate in the US is 4% per annum, while the interest rate in Japan is 1% per annum. Calculate the cost of borrowing in USD terms and determine if it is cheaper for the company to borrow in Japan or in the US.
Related Book For
Financial Accounting
ISBN: 978-0324645576
10th edition
Authors: W. Steve Albrecht, James D. Stice, Earl K. Stice
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