question archive Haier-China can borrow fund in China with an interest rate of 11
Haier-China can borrow fund in China with an interest rate of 11
Subject:FinancePrice:2.86 Bought8
Haier-China can borrow fund in China with an interest rate of 11.08% to invest 1.68 million Australian dollars (A$) and expected return of A$1.91 million next year. Assume that Haier-China and Biopharma-Australia engages in a parallel loan in which the Biopharma-Australia gives Haier-China A$1.68 million in exchange for a loan in Chinese yuan (CNY) at the current exchange rate CNY3.5077/A$. These loans will be repaid by both parties at the end of one year. Assume that next year, Haier-China will pay Biopharma-Australia 14.07% interest on A$1.68 million and that the Biopharma-Australia will pay Haier-China 7.20% interest on the Chinese yuan loan. Also, Haier-China believes that the A$ will depreciate to CNY3.3987/A$ next year. How much the Haier-China will make a profit or loss in CNY from this parallel loan agreement in one year. (enter the whole number with no sign or symbol)
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
At t = 0 Loan amount in CNY, LC = Loan amount x Spot rate = A$ 1,680,000 x CNY3.5077/A$ = CNY 5,892,936.
If Haier-China can borrow this fund in China with an interest rate of 11.08%, the maturity amount to be paid at t = 1 will be = LC x (1 + ichina) = CNY 5,892,936x (1 + 11.08%) = CNY 6,545,873 = C1
The amount that Biopharma-Australia will return to Haier -China = Borrowed amount x (1 + cost of borrowing) = CNY 5,892,936 x (1 + 7.2%) = CNY 6,317,227 = C2
Amount that Haier-China will have to return at t = 1 to Biopharma = Borrowed amount x (1 + cost of borrowing) = A$ 1,680,000 x (1 + 14.07%) = A$ 1,916,376 = C3
Amount that Haier China will receive from investment = A$ 1.96 million = A$ 1,910,000 = C4
Exchange rate at t = 1 will be, S = CNY3.3987/A$
Hence, the profit / (loss) of Haier-China in CNY = (C4 - C3) x S + C2 - C1 = (1,910,000 - 1,916,376) x 3.3987 + 6,317,227 - 6,545873 = (CNY 250316) Negative
Hence, please enter - CNY 250316 as your answer.
