Suppose Viacom can issue $100,000,000 of debt at an AIC of 9 42 , whereas Gaz de France can issue $100,000,000 of debt at an AIC of 10 11 Suppose that the exchange rate is $1 35 If Viacom issues euro denominated bonds equivalent to $100,000,000, its AIC will be 8 27 , whereas if Gaz de France issue...

Clearly Viacom borrows at a lower rate than Gaz de Fr ...

Suppose Viacom can issue $100,000,000 of debt at an AIC of 9.42%, whereas Gaz de France can

Question:

Suppose Viacom can issue $100,000,000 of debt at an AIC of 9.42%, whereas Gaz de France can issue $100,000,000 of debt at an AIC of 10.11%. Suppose that the is $1.35/€. If Viacom issues euro-denominated bonds equivalent to $100,000,000, its AIC will be 8.27%, whereas if Gaz de France issues such bonds, its all-in cost will be 9.17%. Which firm has a comparative advantage when borrowing euros? Why?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...