TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/euro at the time the loan was made to $1.45/euro at the end of the first year, how much interest will TropiKana pay at the end of the first year (rounded)?

Question

Quizplus · Accepted Answer

The interest in euros is 1,000,000 * 5.50% = 55,000 euros. At the end of the year, the exchange rate is $1.45/euro, so the interest in dollars is 55,000 euros * $1.45/euro = $79,750.