Question

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 will TropiKana pay at the end of the first year​ (rounded)?

Answer 1

TropiKana Inc. will pay $50,000 in interest at the end of the first year.

Step-by-step explanation:

TropiKana Inc. borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. 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. To calculate the interest paid, we need to find the difference in the exchange rate and multiply it by the loan amount.

Change in exchange rate: $1.40 - $1.35 = $0.05

Interest paid: $0.05/euro * euro 1,000,000 = $50,000