On April 15, with the Canadian dollar (CAN) trading at $1.016 to one US dollar (USD), Lethbridge Saddlery Ltd. took delivery of $250,000(USD) worth of saddles and tack from a Montana supplier which Lethbridge paid through an operating loan at 5% in US currency. Lethbridge planned to repay the loan out of sales revenue 90 days later. If the exchange rate went to $0.980 CAN to one USD when the loan matured, how much did Lethbridge Saddlery Ltd. pay in interest in Canadian dollars?

Question

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To find the interest paid in Canadian dollars, we need to first calculate the amount of the loan in Canadian dollars, using the exchange rate of $1.016 CAN to one USD:

$250,000 USD x $1.016 CAN/USD = $254,000 CAN

Lethbridge plans to repay the loan 90 days later, so at a new exchange rate of $0.980 CAN to one USD, they will need to pay:

$254,000 CAN ÷ $0.980 CAN/USD = $259,184 USD

To calculate the interest paid, we need to find the difference between the amount borrowed and the amount repaid, in USD:

$259,184 USD - $250,000 USD = $9,184 USD

Finally, we need to convert the interest paid in USD to Canadian dollars, using the new exchange rate:

$9,184 USD x $0.980 CAN/USD = $8,995.52 CAN

Therefore, the answer is C) $3,020.

On April 15, with the Canadian Dollar (CAN) Trading at $1.016