A US-Based Company, Stewart, Inc

question 45

Multiple Choice

A U.S.-based company, Stewart, Inc., arranged a 2-year, $1,000,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos, carries a 10.0% nominal rate, and requires equal semiannual payments.The exchange rate at the time of the loan was 5.75 pesos per dollar, but it dropped to 5.10 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus, Stewart must convert U.S.funds to Mexican pesos to make its payments.If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period, what effective interest rate will Stewart end up paying on the loan?

• A) 10.36%
• B) 11.50%
• C) 17.44%
• D) 20.00%
• E) 21.79%

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Definitions:

Superordinate Goals

Shared objectives that transcend individual or group interests, promoting cooperation and cohesion among previously competitive or conflicting parties.

Strategic Contingencies

Factors or events that are not directly under the control of a manager or organization but must be accounted for in strategic planning as they could impact the organization's success.

Institution

An established organization or foundation, especially one dedicated to education, public service, or culture.

Personal Gain

Pursuing one's own interests or benefits, often without regard for the welfare of others or ethical considerations.