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.

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.

Quizplus · Accepted Answer

Initially, the dollar amount obtained from the loan is calculated by multiplying the loan amount by the spot rate at the time the loan is extended: 1,500,000 MYR * $.25 = $375,000. To repay the loan, the MNC needs to convert the total repayment amount back into dollars at the future spot rate. The total repayment amount in MYR is the principal plus interest: 1,500,000 MYR * (1 + 7%) = 1,605,000 MYR. At the future spot rate of $.28, the dollar amount needed to repay the loan is 1,605,000 MYR * $.28 = $449,400.

​Assume Jelly Corporation, a U

Assume Jelly Corporation, a U