How many dollars must be borrowed initially to operate

Assignment Help Finance Basics

Reference no: EM133290890

Question: A company in the USA needs a loan of 10 million Euros to finance its upcoming operations in Germany. However, it cannot take a loan from a German bank because it is not yet established in Europe.

The company issues US Dollar -denominated debt (at par value) in USA, with an annual coupon rate of 10%. After it will convert the dollar proceeds from the debt issue into Euros at the current spot rate $1.12.

The company plans to use the revenue in euros from the business transactions for loan repayments during the next three years. Hence, the company engages in a currency swap contract to exchange euros to dollars for an exchange rate of $1.12 at the end of each of the next 3 years.

How many dollars must be borrowed initially to operate the business in Germany? How many euros should the company specify in the swap agreement that it will swap over each of the next three years in exchange for dollars, in order to make its annual coupon payments to the U.S. creditors?

Reference no: EM133290890

Questions Cloud

Discuss the characteristics and differences of the over : CUS 159 St. John's University Discuss the characteristics and differences of the Over the Counter (OTC) market and the organised securities exchange

Stock market and financial performance : Evaluate the chosen companies Stock Market and Financial Performance and suggest strategic goals that would accelerate the company's growth.

What valuation multiple is better : The years of amortization ranges from 3 years all the way to 10 years. What valuation multiple is better to evaluate this industry and why

Corporate governance importance : Corporate governance importance(we have a group presentation about that can u help us with giving side topics related to the main topic or side notes

How many dollars must be borrowed initially to operate : BUS 101 California State University, Fullerton How many dollars must be borrowed initially to operate the business in Germany? How many euros should the company

Calculate the cross over ebit : Calculate the cross over EBIT at which the EPS from issuing new debt or new equity is the same

What did emma goldman and margaret sanger have in common : What was the nicknamed given to journalist who exposed the ills of industrial and urban life? What did Emma Goldman and Margaret Sanger have in common?

What is the new djia : If the closing price of stocks of the 3 companies at the end of the trading day after the merger are $83.5, $32, and $29 what is the new DJIA

How do we find truth in history : How do we find truth in history? Is absolute truth possible? Why or why not.

User Account

All Pages