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Summary of R
Summary of R
Summary of R
R.J Reynolds need to determine the most cost efficient option to finance the remaining $100 million
needed for the Nabisco Brans, Inc acquisition from the following options
US dollar denominated bond issued by an overseas company and held in a foreign institution
outside both the US and issuers home nation
Price 100.125%
Fees 1.875%
Fluctuation of foreign exchange rates and fewer regulatory restrictions and lower interests rate than
in the US are the important points
Price 100.250%
Fees 1.875%
Increased risk with inclusion of another foreign currency and reduced chance of large profit.
Hedging reduces risk of large losses and ease of liquidity and closure are some of the basic points.
Hedge the bond cash flows into dollars to reduce the foreign currency risk and by doing such currency
swap, the IRR is lower
Face Value $ 100 mil
Price 100.125%
Fees 1.875%
Hedging into US dollars can reduce exposure to foreign currency risk and swap will benefit both
companies by lowering their cost of financing.
Price 100.50%
Fees 1.875%
This option is vulnerable to exchange rate risks. In this case if the 2nd currency appreciates,
repayment will be valued higher than issued so exchange rate loss. Secondly if 2nd currency
depreciates, repayment, exchange rate benefits the firm