Suppose that on January 1 a firm in Mexico borrows $20 million from Citibank (USA) for one year at 8.00% interest per annum. During the year U.S. inflation is 2.00% and Mexican inflation is 12.00%. The loan was taken when the spot rate was Peso 3.40/US$. At the end of the one year loan period the exchange rate was Peso 5.80/US$.

Based on the above information, what is the cost to the firm of the loan in Mexican peso's (percent)?

Answer rating: 100% (QA)

Heres how to calculate the cost of the loan to the firm in Mexican pesos percent 1 Calculate the int... View the full answer