loan is denominated in Mexican pesos, carries a 10 percent nominal rate, and requires equal semiannual
payments. The exchange rate at the time of the loan was 5.75 pesos per dollar but immediately dropped
to 5.10 (pesos per dollars) before the first payment came due. The loan carried no exchange rate
protection and was not hedged by Hindustan Construction Corporation in the foreign exchange market.
Thus, Hindustan Construction Corporation must convert U.S. funds to Mexican pesos to make its
payments. If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period, what
effective interest rate will Hindustan Construction Corporation end up paying on the foreign loan?
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