Fancy Footwear Has a Line of Credit with a Local

question 65

Multiple Choice

Fancy Footwear has a line of credit with a local bank in the amount of $175,000. The loan agreement calls for annual interest of 6.8 percent with a compensating balance of 3 percent of the total amount borrowed. The compensating balance will be deposited into an interest-free account. What is the effective interest rate on the loan if the firm needs $125,000 to cover expenses for one year?

• A) 7.01 percent
• B) 7.13 percent
• C) 6.94 percent
• D) 7.17 percent
• E) 7.08 percent

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Definitions:

Foreign Demand

The desire and willingness of buyers from other countries to purchase goods and services, influenced by factors such as price, quality, and exchange rates.

U.S. Exports

Goods and services produced in the United States and sold to other countries.

Dollar

A unit of currency used in various countries, most notably the United States, identified as a standard monetary unit for transactions.

Domestic Brands

Brands that originate from and are marketed within a country's borders, often tailored to local tastes, culture, and preferences.