The Australian Dollar appears to be falling in value against the US Dollar. The
owner is well known at Bank of America in New York, where she maintains her
own personal Bank accounts.
She also has a credit facility from where she borrows large amounts of funds
($10million or more at a time) for use in Australia, for lending to the clients that
take out mortgages through the business that you work in.
The money that she borrows in America is lent to her at a special rate of 4.75%
per annum (American Rates). She has to maintain a monthly payment of interest
to the Bank based on these rates. The money is sent to America from Brisbane
through a local Bank.
1. What is the effect of the value of the Australian dollar falling in terms of value
against the US Dollar when determining the cost of funds borrowed from
America? Use the fact that value of the Australian Dollar has fallen by .25% in
terms of its value against the US Dollar.
to answer this question will i need to use foreighn currency rates? (usd and aud) ?
this is how i managed to work it out. i hope its correct
1usd = 0.75aud (hyperfetically)
using the amount of 10 million as the amount borrowed
1000000 x 4.75%
= $14,750,000 usd is the amount to be paid back.
so then i did
1000000x 0.75
=7500,000 is the amount in aud borrowed.
so coming back to the original question "What is the effect of the value of the Australian dollar falling in terms of value against the US Dollar when determining the cost of funds borrowed from
America?" - having the australian dollar fall in terms of value to the usd, will result in the business having to raise its interest rates on a monthly basis, if it was falling, to pay back the loan from the united states bank and also make a profit
any input would be greatly appreciated
