Solution: Annual interest of the direct loan = 20%
Annual interest of the credit swap = 30%
20. Which alternative is more attractive: direct loan or credit swap?
A. direct loan
B. credit swap
C. equally attractive
* D. cannot tell
E. depends on the government policy
Solution: The direct loan is cheaper but subject to exchange risk; the credit swap is more expensive and has no exchange risk. Thus, one cannot tell for sure which alternative is more attractive.
21. What is the exchange rate that will make the cost of the direct loan equal to the cost of the credit swap?
A. Israel shekel 4.0 per $
* B. Israel shekel 4.4 per $
C. Israel shekel 4.8 per $
D. Israel shekel 5.5 per $
E. Israel shekel 9.0 per $
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