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 depreciates against the dollar from $1.40/euro at the time the loan was made to $1.35/euro at the end of the first year, how much interest and principle will TropiKana pay at the end of the first year if they repay the entire loan plus interest (rounded)?

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Quizplus · Accepted Answer

The correct answer is D.The interest for the first year is euro 1,000,000 * 5.50% = euro 55,000. The total amount to be repaid is euro 1,000,000 + euro 55,000 = euro 1,055,000. At the end of the first year, the euro has depreciated against the dollar from $1.40/euro to $1.35/euro. This means that it will take more dollars to repay the loan. The amount to be repaid in dollars is euro 1,055,000 * $1.35/euro = $1,424,250.