Discussion Board Scenario: You work as an analyst in the planning unit of a firm with international operations. From time to time, you might be called to a meeting to discuss certain aspects of international business. As you state your responses to the Discussion Board questions, assume that you are in a formal, management discussion. Your manager has asked that you state your sources when citing facts or important concepts, for good order.
Question 2: Your company is contemplating a $100 million debt financing. The funds are needed to finance working capital requirements of your international company. This will technically be a short term loan, because the firm wants to repay it with interest in one year. Your manager asked you to attend a meeting on this topic because this is a fairly large amount. Your company’s treasurer is considering three options:
Borrowing U.S. dollars from the Bank of America at 5 percent.
Borrowing British pounds from the Royal Bank of Scotland at 4 percent.
Borrowing Euros from Deutsche Bank at 7 percent.
If your company borrows foreign currency, it will not cover it; that is, it will simply change foreign currency for dollars at today’s spot rate and buy the same foreign currency a year later at the spot rate then in effect. You have read in a business journal that there are estimates that the pound may appreciate by 2 percent relative to the dollar and the Euro may depreciate by 3 percent relative to the dollar in the next year. From which bank should your borrow? Why?
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