Grupo Bimbo, although Mexican by incorporation, evaluates all business results, including financing costs, in U.S. dollars. The company needs to borrow $ 10,000,000 or the foreign currency equivalent for one year.  For all issues, interest is payable once per year (annual compounding), at the end of the year. Available alternatives are: Issue Japanese yen bonds at par yielding 3% per annum. The current exchange rate is ¥106/$, and the yen is expected to strengthen against the dollar to ¥100/$. Issue euro-denominated bonds at par yielding 7% per annum. The current exchange rate is $1.15/€, and the euro is expected to weaken against the dollar to $1.1/€. Issue U. S. dollar bonds at par yielding 5% per annum. Which course of action do you recommend Grupo Bimbo take?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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  1. Grupo Bimbo, although Mexican by incorporation, evaluates all business results, including financing costs, in U.S. dollars. The company needs to borrow $ 10,000,000 or the foreign currency equivalent for one year.  For all issues, interest is payable once per year (annual compounding), at the end of the year. Available alternatives are: Issue Japanese yen bonds at par yielding 3% per annum. The current exchange rate is ¥106/$, and the yen is expected to strengthen against the dollar to ¥100/$. Issue euro-denominated bonds at par yielding 7% per annum. The current exchange rate is $1.15/€, and the euro is expected to weaken against the dollar to $1.1/€. Issue U. S. dollar bonds at par yielding 5% per annum. Which course of action do you recommend Grupo Bimbo take?
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