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I want to take a loan and I have two options:

  • Euros APR: 7.2% terms: 10 years
  • Yuan APR: 9.2% terms: 5 years

I have taken some financial classes so I have a vague idea about it. I know there is an equilibrium that I can use. However, I don't know how to find the corresponding risk-free rates and I don't know whether the equilibrium makes much sense in real life since the interest and exchange rates will change over time. Could you tell me how to compare the two APRs?

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Ignoring the difference in term, the different interest rates indicate that the Yuan is expected to lose value against the Euro over the next 5-10 years (inflation will be higher). You could look at the FX futures market to see what the expectation over the next 5 years is to compare the loans, but there should be little if any difference when you take inflation into account.

Whether that will be true or not is anyone's guess. It could inflate more or less than expected, so there's no way to know if the rate of either loan will end up being "better" than the other.

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