MBF14e Chap14 Debt and Equity Pbms

Problem 14.4

Inter-KSA is a Saudi Arabian airline company specializing in internal flights that needs 50,000,000 euros for one year to finance working capital. The airline firm has two alternatives for borrowing:

a) Borrow 50,000,000 euros in Paris at 7% per annum.

b) Borrow Saudi riyals SAR 225,000,000 in Saudi Arabia at 9% per annum and then exchange the riyals at the cross rate of 1 EUR = 4.5 SAR.

At what ending exchange rate would Inter-KSA be indifferent between borrowing euros and borrowing Saudi Riyals?

I'm not worried about the calculation. I would appreciate if one would explain the theory behind this question. I would also appreciate if one can direct me to which part of chapter 14 I should look at.