A1 Blenman Corporation, based in the United States, arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is denominated in Mexican pesos, carries a6.5% nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 20.00 pesos per dollar, but it dropped to 19.55 pesos per dollarbefore the first payment came due. The loan was not hedged in the foreign exchange market. Thus, Blenman must convert U.S. funds to Mexican pesos to make itspayments. If the exchange rate remains at 19.55 pesos per dollar through the end of the loan period, what effective annual interest rate will Blenman end up paying on theloan? Do not round the intermediate calculations and round the final answer to two decimal places.O a. 8.69%O b.6.61%O c.7.26%O d. 4.21%Oe. 8.60%

Exchange rate risk occurs when a company's funds are denominated in different currency units. This…

Answered: Blenman Corporation, based in the…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter10: Measuring Exposure To Exchange Rate Fluctuations

Section: Chapter Questions

Problem 2ST

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