Blenman Corporation,based in Canada,arranged a 2-Year,$1,000 Loan to Fund a Project

question 45

Multiple Choice

Blenman Corporation,based in Canada,arranged a 2-year,$1,000 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 10.1366 pesos per dollar,but it dropped to 9.5511 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert Canadian dollars into Mexican pesos to make its payments.If the exchange rate remains at 9.5511 pesos per dollar through the end of the loan period,what effective interest rate will Blenman end up paying on the loan?

• A)11.50%
• B)12.44%
• C)13.00%
• D)15.80%

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Definitions:

Permanent Fund

A fund established by a government or organization meant to provide a permanent source of income.

Endowed Gift

A donation made to an institution with the stipulation that the principal is kept intact and only the investment income is used.

Current Financial Resources

Assets that are expected to be used or turned into cash within one year, providing insight into a company's short-term financial health.

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Outflows of money or other valuables, typically categorized as either capital expenditures (CapEx) or operating expenses (OpEx).