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    Calculating the Mexican Peso Cost of a Dollar Loan

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    Suppose on that on January 1st a Mexican firm borrows $20 million from Citibank (USA) for one year at 8.00% interest per annum. The loan was taken when the spot rate was USD/MXP3.40. At the end of the one year when the loan was repaid, the exchange rate was USD/MXP 5.80. Based on the above information, calculate the Mexican Peso cost of the dollar loan in percentages.

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    Solution Preview

    Loan amount=$20,000,000
    Loan amount in Mexican Peso=20000000*3.40=MXP ...

    Solution Summary

    This solution depicts the steps to estimate the Mexican Peso Cost of a dollar loan in the given case with all workings shown.