Indonesian companies were offered loans from Goldman Sachs and Bank BNI with the following details. The spot rate is IDR 10,000/$.

Goldman Sachs: Value $1 million. One year term, 5% interest, paid at the end of the year together with the principal loan.
Bank BNI: Value of IDR 10 billion. One year period. 15% interest, paid at the end of the year along with the principal loan

a. Suppose there is a 1 year forward contract with an exchange rate of IDR 11,000/$. If borrowing in dollars, the company intends to hedge the payment of the loan. Evaluate which loan is more profitable, whether from BNI or Goldman Sach.

b. For example, there is no forward contract. The company pays dollars at the spot rate one year in the future (when the company buys dollars). At what spot rate next year, will the interest on the loan from BNI be the same as the interest on the loan from Goldman Sachs?

Answer rating: 100% (QA)

a Hedging with a 1Year Forward Contract at IDR 11000 Loan from Goldman Sachs Principal amount 1 million Interest rate 5 Forward rate IDR 11000 To calc... View the full answer