Question

Assume Jelly Corporation, a U.S.-based MNC, obtains a one-year loan of 1,500,000 Malaysian ringgit (MYR) at a nominal interest rate of 7 percent. At the time the loan is extended, the spot rate of the ringgit is $.25. If the spot rate of the ringgit in one year is $.28, the dollar amount initially obtained from the loan is $____, and the MNC needs $____ to repay the loan.

a. 375,000; 449,400
b. 449,400; 375,000
c. 6,000,000; 5,357,143
d. 5,357,143; 6,000,00

Answer 1

Option A is correct one.

If the spot rate of the ringgit in one year is $0.28, the dollar amount initially obtained from the loan is $375000, and the MNC needs $449400 to repay the loan.

Step-by-step explanation:

1. Spot rate = 1 ringit = $.25

1500000 ringit = $ 1500000 × 0.25 = $375000 initially obtained amount in $.

2. Amount needed to repay after 1 year

1 year spot rate = $.28

1500000 × .28 = $420000

Add interest 7% = $29400 ,

Total = $ 449400