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?

---

Definitions:

Thylakoid Membrane

A membrane-bound compartment inside chloroplasts and cyanobacteria, involved in the light-dependent reactions of photosynthesis.

Stroma

The supportive tissue of an epithelial organ, tumor, gonad, etc., consisting of connective tissues and blood vessels.

Thylakoid Compartment

A membrane-bound compartment inside chloroplasts and cyanobacteria that is the site of the light-dependent reactions of photosynthesis.

Yields ATP

The process of producing ATP (adenosine triphosphate), the primary energy carrier in all living organisms, typically via cellular respiration or photosynthesis.