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as8 - 3 a The cost of financing with foreign currencies is...

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3. a. The cost of financing with foreign currencies is low when the dollar strengthens, and high when the dollar weakens. b. It may offset some exchange rate risk if it has cash inflows in euros. These euros could be used to make coupon payments. 8. a. Ivax would need to consider the interest rate in the U.S. versus the interest rate when borrowing koruna (the Czech currency). It would also need to consider the potential change in the koruna currency against the dollar. If it finances the project in dollars, it is more exposed to exchange rate risk, because the funds would be remitted to the U.S. before paying the interest expenses on the loan. Conversely, if it finances the project in koruna, it could use some of its local funds to pay off its interest expenses before remitting any funds to the U.S. parent. Another reason for borrowing from a local Czech bank is that the bank may help Ivax avoid any excessive regulatory restrictions that could be imposed on foreign firms in the drug industry. These potential advantages of borrowing locally must be weighed against the
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