Corporate Finance?
In December 2006 a Multinational Corporation based in Pakistan borrowed Rs.200 million at an attractive interest rate of 4%,
when the exchange rate between the Pakistani rupee ( PKR) and U.S dollar was Rs. 59.4/$. One year later when the
Corporation came to repay its loan, the exchange rate was Rs. 60.5/$.
1) Calculate in U.S dollars the amount that The Corporation borrowed and the amounts that it paid in interest and principal.
(assume annual interest payments).
2) What was the effective U.S dollar interest rate on the loan?
Based on the exchange rate, the company borrowed $3,367,000. since the company borrowed Rs, it also repaid Rs, to its interest rate was 4% and it repaid 200 million Rs. The exchange rate at the end is not relevant, unless the loan had to be repaid in $, which you did not say. However, in $ terms it repaid $3,305,785.
The problem is different if a US lender made the loan and required repayment in $. Since you did not state that, I leave it to you to solve.
