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Hi,
Please help me to digest the Q1 from pilot paper.commercial borrowing rate in Gamala is at 13%, subsidized loan is at 6%
dollar loan could be obtained at 5%.
The answer shows subsidy benefit of 7%.Why don’t we show 1% loss compared to home country cost of capital? This borrowing doesn’t look beneficial for me, despite the subsidy.
Please explain the logic
I will answer although in future you must ask in the Ask the Tutor forum if you do want me to answer (this forum is for students to help each other).
The question says that they intend to borrow the money in Gamala and the rest of that paragraph certainly implies that they will take the subsidised loan.
Also, don’t forget that borrowing any other way would mean that it would have to be repaid – this borrowing will not have to be repaid 🙂
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