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Borrow hk39000000 in hong kong at 700 per annum and

Question: Morning Star Air (China). Morning Star Air, headquartered in Kunming, China, needs US$25,000,000 for one year to finance working capital. The airline has two alternatives for borrowing:

a. Borrow US$25,000,000 in Eurodollars in London at 7.250% per annum.

b. Borrow HK$39,000,000 in Hong Kong at 7.00% per annum, and exchange these Hong Kong dollars at the present exchange rate of HK$7.8/US$ for U.S. dollars. At what ending exchange rate would Morning Star Air be indifferent between borrowing U.S. dollars and borrowing Hong Kong dollars?

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Accounting Basics: Borrow hk39000000 in hong kong at 700 per annum and

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