Consider the Situation of Firm a and Firm B $$\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array}$$

question 68

Essay

Consider the situation of firm A and firm B.The current exchange rate is $1.50/€.Firm A is a U.S.MNC and wants to borrow €40 million for 2 years.Firm B is a French MNC and wants to borrow $60 million for 2 years.Their borrowing opportunities are as shown; both firms have AAA credit ratings.
$$\begin{array} { l l l } & \$ & € \\\text { A } & \$ 7 \% & € 6 \% \\B & \$8 \% & € 5\%\end{array}$$ If firm A could use the forward exchange markets to redenominate a 2-year $60m 7 percent USD loan into a 2-year euro denominated loan,what would be the interest rate?

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Definitions:

Synthetic Pesticides

Man-made chemicals used to kill or control pests that affect plants, animals, and humans.

Genetic Resistance

The ability of an organism to naturally resist diseases, pests, or harsh environmental conditions due to its genetic makeup.

Genetic Resistance

indicates an organism's inherent ability to resist or tolerate infection, parasites, or chemical treatments, often as a result of specific genetic characteristics.

DDT

A colorless, tasteless, and almost odorless crystalline chemical compound, historically used as a pesticide but now banned in many countries due to its environmental impact.