If an Australian Company Borrows Funds Offshore (For Use in Australia)at

question 6

Essay

If an Australian company borrows funds offshore (for use in Australia)at 3% p.a., rather than borrowing domestically at 6% p.a., and decides not to hedge their FX risk exposure, what will be their effective cost of funds? What will the effective interest cost if the risk is hedged with an FX swap?

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Definitions:

Debtors

Individuals or entities that owe money to others, typically arising from borrowing funds to finance activities, purchases, or investments.

Exchange Theorists

Social scientists who study the social behavior in terms of the perceived balance of costs and benefits involved in human interactions.

Valued Resources

Assets or materials that are considered important or valuable within a society or community, often contributing to its well-being and development.

Approval

Formal consent or agreement given towards an action, policy, or decision.