Paul Fitzpatrick, vice-president of finance for Wright-Anderson Machines, was working late one evening in March 1987. Wright-Anderson Machines was a Canadian manufacturer of heavy industrial equipment with revenues in Canadian dollars. In early April 1981, the company had borrowed SF 60 million at six per cent fixed with a six-year maturity. At that time the Canadian dollar equivalent of the loan was about $37 million. Now the loan was approaching maturity, and as there were no resources available to retire it, it would have to be rolled over. It was Paul's responsibility to decide on the best way to refinance the loan. Paul was considering a variety of currencies and maturities for the purpose of refinancing. Specifically he was considering using SF, DM, US$, or CDN$, and in maturities of six months, or one, three, or five years. He also thought about dividing the SF 60 million loan among currencies and maturities in minimum packages of SF five million. The plethora of options was confounding. Earlier that day Paul had contacted his banker and received the following information on current fixed rate borrowing costs. Page 2 6 Mos. 1 Yr. 3 Yr. 5 Yr. SF 5.25 5.25 5.50 5.75 DM 5.80 6.00 6.00 6.20 US 8.60 8.66 8.70 8.75 CDN 9.20 9.37 9.75 10.00 Paul also enquired about current spot and forward exchange rates and found they were as follows: Term USS/SF USS/DM CDN$/US$ Spot 0.6644 0.5511 1.3051 3 Mos. 0.6731 0.5588 1.3067 6 Mos 0.6735 0.5584 1.3079 12 Mos. 0.6855 0.5650 1.3115 Forward rates beyond 12 months were usually available, but the market was less liquid. To provide a bit of historical perspective, the bank gave Paul the following spot exchange rates in effect at the dates indicated: CDNS/SF April 1981 0.6198 1982 0.6361 1983 0.5927 1984 0.5928 1985 0.5223 1986 0.7204 March 1987 0.8666 After sharpening his pencil, Paul got to work. A decision had to be made soon and Paul wanted to make sure his decision was a good one