A US COMPANY BORROWS BRITISH POUNDS FOR ONE YEAR AT 6 PERCENT. THE...

37. - BT THANH TOÁN QUỐC TẾ GLOBAL CORPORATE FINANCE DAP AN 37. - BT THANH TOÁN QUỐC TẾ GLOBAL CORPORATE FINANCE DAP AN
Toán BT THANH TOÁN QUỐC TẾ GLOBAL CORPORATE FINANCE DAP AN
37. A US company borrows British pounds for one year at 6 percent. The US one-year interest rate is 8 percent. The one-year forward rate of the pound is $1.93. The spot rate of the pound at the beginning is $1.95. The pound's spot rate is $2.05 by the end of the year. Based on the information, compute the percentage change in pound and the effective interest rate of the loan in US dollar terms. A. 5.1%, 10.0% B. 6.1%, 11.4% * C. 5.1%, 11.4% D. 7.0%, 12.0% E. 8.0%, 12.5% Solution: Percentage change in pound = ($2.05 - $1.95)/$1.95 = 5.1%. Effective interest rate = (1 + 0.06) (1 + 0.051) - 1 = 11.4%.