Analysis of the choice between domestic and foreign loan facilities

Nigel Meade and Malcolm J Finney

Omega, 1979, vol. 7, issue 4, 333-338

Abstract: When a corporation borrows from a non-domestic source, such as the Eurobond market, it is obliged to make interest payments in a foreign currency at pre-determined periods throughout the life of the loan. By doing this the corporation incurs an exchange risk which may outweigh any advantages of borrowing foreign currencies such as lower interest rates. This note describes a criterion which assists the corporate treasurer in his choice of currency by showing the exchange rates at the end of the life of the loan implied by each choice.

Date: 1979
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