Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10478741 | Journal of Multinational Financial Management | 2005 | 14 Pages |
Abstract
Can firms benefit from borrowing in foreign currency even when they do not have cash flows in that currency? If exchange rates follow a random walk, a company could minimize expected costs by borrowing in the currency with the lowest nominal interest rate, but will increase the volatility of borrowing costs. This study uses zero-cost currency options collars as a means to cap increases in the variability of interest costs. Applied to yen versus dollar borrowing decisions from 1994 to 2001, the strategy offers promise for firms that desire to lower expected costs by borrowing yen, but want to limit the added risk.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
David Vander Linden,