Ivax Corp. (based in Miami) is a U.S. drug company that has attempted to capitalize on new

Question:

Ivax Corp. (based in Miami) is a U.S. drug company that has attempted to capitalize on new opportunities to expand in Eastern Europe. The production costs in most Eastern European countries are very low, often less than one-fourth of the cost in Germany or Switzerland. Furthermore, there is a strong demand for drugs in Eastern Europe. Ivax penetrated Eastern Europe by purchasing a 60 percent stake in Galena AS, a Czech firm that produces drugs.
a. Should Ivax finance its investment in the Czech firm by borrowing dollars from a U.S. bank that would then be converted into koruna (the Czech currency) or by borrowing koruna from a local Czech bank? What information do you need to know to answer this question?
b. How can borrowing koruna locally from a Czech bank reduce the exposure of Ivax to risk?
c. How can borrowing koruna locally from a Czech bank reduce the exposure of Ivax to caused by government regulations?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Political Risk
Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign...