Example on how the cost of debt is affected by the exchange rate Assume a US-based multinational borrows CHF 1,500,000 for 1 year. The borrowing interest rate is i = 5% (EAR). The current spot rate S0(CHF/USD) is 1.5. If the CHF appreciates against the USD during the year, and the future spot rate one year from now is estimated at S1(CHF/USD)=1.44, what is the dollar (effective) cost of debt during the year? MNCs Cost of Capital

Example on how the cost of debt is affected by the exchange rate bonus What if the CHF 1,500,000 loan is to be repaid in 2 years, with interest paid annually and principal paid at the end of 2 years. Assume the same information as before; the future spot rate two years from now is estimated at S2(CHF/USD)=1.46. What is the dollar (effective) cost of debt on this loan?