BBC (Australia). Botany Bay Corporation (BBC)

of Australia seeks to borrow US$30,000,000 in the eurodollar market. Funding is needed for two years.

Investigation leads to three possibilities. Compare the alternatives and make a recommendation.

1. Botany Bay could borrow the US$30,000,000 for two years at a fixed 5% rate of interest.

2. Botany Bay could borrow the US$30,000,000 at LIBOR + 1.5%. LIBOR is currently 3.5%, and the rate would be reset every six months.

3. Botany Bay could borrow the US$30,000,000 for one year only at 4.5%. At the end of the first year, Botany Bay Corporation would have to negotiate for a new 1-year loan.