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Suppose Daimler (a German) company wants to raise euro 5 million with short-term debt financing, and the funds will be repaid with interest in one
Suppose Daimler (a German) company wants to raise euro 5 million with short-term debt financing, and the funds will be repaid with interest in one year. The company is considering three loans:
- Borrow in US dollars from Bank of America at 1.5% (annual rate)
- Borrow Euros from Deutsche Bank at 3% (annual rate)
- Borrow GBP from Barclays at 4% (annual rate)
Suppose the current $/Euro spot rate is $1.15/Euro, and the current Euro/GBP is Euro1.1310/GBP. What are the projected #Euro/GBP and #$/Euro exchange rates one year from now for which the expected interest costs in euro terms would be equal for the three loans?
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