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Problem regarding the break-even financing

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Break-Even Financing

Orlando, Inc., is a U.S.- based MNC with a subsidiary in Mexico. Its Mexi- can subsidiary needs a one-year loan of 10 million pesos for operating expenses. Since the Mexican interest rate is 70 percent, Orlando is considering borrowing dollars, which it would convert to pe- sos to cover the operating expenses.

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Question: By how much would the dollar have to appreciate against the peso to cause such a strategy to back?re? (The one-year U.S. interest rate is 9 percent.)

Reference no: EM131033780

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