EXXONM is a MNC Oil company. It has expanded its operation in Thailand and considering raising debt in local currency. The following information is available for the analysts:
Length of loan is for 3 years.
Principal to be borrowed is Thai Bhat 50,000,000.
The interest rate on the loan is 3.0%.
At present the THB/USD exchange rate is 32.58
For the each of next three years it is expected that the THB currency will depreciate 1% against USD.
Based on these information the CFO wants to know what will be cost of borrowing in USD.