A US-Based Company Needs to Raise Five-Year Financing for a New

question 17

Multiple Choice

A US-based company needs to raise five-year financing for a new project. It will have to pay 5% interest for money raised in dollars, but only 2% interest for money raised in yen because interest rates are lower in Japan. Which of the following is not a risk if the company chooses to raise yen financing?

• A) The yen appreciates against the dollar, and dollar interest rates rise.
• B) The yen appreciates against the dollar, and yen interest rates rise.
• C) The yen depreciates against the dollar, and yen interest rates fall.
• D) The yen depreciates against the dollar, and yen interest rates rise.

---

Definitions:

Dollar Price

This refers to the cost or value of a good, service, or asset expressed in terms of the United States dollar.

English Pound

The currency of the United Kingdom, which is one of the world's major currencies used for trade and investment.

Gold Standard

A monetary system where a country's currency or paper money has a value directly linked to gold, used historically by many countries but largely abandoned today.

Franc

A currency that was historically used in several countries, including France and Switzerland, some of which still maintain the franc in various forms.