The Currency of Denomination Decision for Debt Financing

S Ghon Rhee, Rosita P Chang and Peter E Koveos
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S Ghon Rhee: University of Rhode Island
Rosita P Chang: University of Rhode Island
Peter E Koveos: Syracuse University

Journal of International Business Studies, 1985, vol. 16, issue 3, 143-150

Abstract: This paper examines the currency-of-denomination decision for long-term debt financing in the presence of corporate income taxes and flotation costs. The numerical analysis provides convincing evidence that the “tax effect” dominates the “flotation cost effect” unless the firm operates in tax haven countries. Hence, the conventional decision rule still applies to the choice of currency in which to borrow or to lend: Borrow in the weakest currency and lend in the strongest.© 1985 JIBS. Journal of International Business Studies (1985) 16, 143–150

Date: 1985
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