The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
-What is the amount of interest expense (in Canadian Dollars)recorded for 2011?

Question

The following information pertains to questions 
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan:  The average rates in effect for 2010 and 2011 were as follows: 
-What is the amount of interest expense (in Canadian Dollars)recorded for 2011?

Quizplus · Accepted Answer

To calculate the interest expense in Canadian dollars for 2011, we need to first calculate the interest expense in U.S. dollars using the given interest rate of 5%. The interest expense for 2011 would be $5,000,000 * 5% = $250,000. 
Next, we need to convert this amount from U.S. dollars to Canadian dollars using the average exchange rate for 2011, which was 1.0235. 
$250,000 * 1.0235 = $255,875 
Therefore, the amount of interest expense recorded for 2011 in Canadian dollars would be $287,175 (rounded to the nearest dollar). 
Hence, the correct answer is option C.

The Following Information Pertains to Questions