From which bank should happy company borrow

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Happy Company wants to raise $2 million with debt financing. The funds are needed to finance working capital, and the firm will repay them with interest in one year. Happy Company's treasurer is considering three options:

a. Borrowing U.S. dollars from Security Pacific Bank at 8 percent.

b. Borrowing British pounds from Midland Bank at 14 percent.

c. Borrowing Japanese yen from Sanwa bank at 5 percent.

If Happy 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.

Happy Company estimates the pound will depreciate by 5 percent relative to the dollar and the yen will appreciate 3 percent relative to the dollar in the next year. From which bank should Happy Company borrow?

Reference no: EM131374226

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