An Indian company borrowed dollars at the start of the year and repaid it in dollars with percent annual interest. At borrowing the rate was Rs. per dollar. With zero inflation in both countries, the real cost of borrowing is zero if the exchange rate is Rs. ________ per dollar at repayment (rounded off to one decimal place).
1 markInternational EconomicsBalance of payments and exchange ratesInterest parity: covered and uncoveredModerateabout 2 min
IIT JAM 2024 Question 44: Balance of payments and exchange rates
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An Indian company borrowed 300 dollars at the start of the year and repaid it in dollars with 12 percent annual interest. At borrowing the rate was Rs. 70 per dollar. With zero inflation in both countries, the real cost of borrowing is zero if the exchange rate is Rs. per dollar at repayment (rounded off to one decimal place).
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What this question tests
This question is on Interest parity: covered and uncovered, part of Balance of payments and exchange rates in International Economics.
How interest differentials and expectations tie exchange rates to interest rates.
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