Fonterra is New Zealands largest company. It is a dairy nutrition company and controls a large part
Question:
Fonterra is New Zealand’s largest company. It is a dairy nutrition company and controls a large part of dairy exports worldwide. The company evaluates all business results, including financing costs, in New Zealand dollars. The company needs to borrow NZ$1 million or the foreign currency equivalent for four years. For all issues, interest is payable once per year, at the end of the year. Available alternatives are as follows:
a. Sell Japanese yen bonds at par yielding 3% per annum. The current exchange rate is ¥85/NZ$, and the yen is expected to strengthen against the New Zealand dollar by 2% per annum.
b. Sell euro-denominated bonds at par yielding 7% per annum. The current exchange rate is NZ$1.6034/€, and the euro is expected to weaken against the New Zealand dollar by 2% per annum.
c. Sell New Zealand dollar bonds at par yielding 5% per annum.
d. Which course of action do you recommend Fonterra take and why?
Step by Step Answer:
Multinational Business Finance
ISBN: 9781292445960
16th Global Edition
Authors: David Eiteman, Arthur Stonehill, Michael Moffett