A MNE That Borrows Long-Term in a Foreign Currency

question 7

Multiple Choice

A MNE that borrows long-term in a foreign currency

• A) may obtain a lower effective cost of debt.
• B) might be better off borrowing dollars at a higher interest rate.
• C) may gain or lose because of transaction exposure.
• D) all of the above.

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Definitions:

Fair Market Value

A price established by competitive bidding among many buyers and sellers.

Compounded Monthly

Refers to the calculation of interest where the amount earned or paid is added to the principal balance each month, causing future interest calculations to be based on the increased balance.

Perpetuity

A type of annuity that receives an infinite series of identical cash flows.

Compounded Annually

An interest calculation method where interest is added to the principal sum at the end of each year, allowing for interest to be earned on interest in subsequent years.