The XYZ corporation, which has its headquarters and most of its operations in Texas, is committed to a new manufacturing project in France. XYZ Corporation is trying to decide whether to finance the project in France with bonds denominated in in dollars vs. with bond denominated in euros.

a. U.S. dollar is currently very strong relative to the euro, by historical standards. If the XYZ Corporation expects the dollar to strengthen further, will that expectation favor XYZ Corporation financing in dollars or in euros? Explain why you chose dollar financing or euro financing.

b. Suppose instead that XYZ Corporation is uncertain about whether the exchange rate for the dollar vs. euro will go up or go down. The XYZ Corporation expects to have substantial cash flows in France from the project, and any profits will be sent to its parent company in Kansas. If the XYZ Corporation is concerned about exchange rate risk, does that favor XYZ Corporation financing in dollars or in euros? Explain why you chose dollar financing or euro financing.