In: Finance
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.4 million, a one-year period, an initial spot rate of SF1.4900, a 5.498% cost of debt, and a 36% tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was:
A. SF1.4900
B. SF1.4200
C.SF1.3550
D. SF1.6030
a. If the exchange rate at the end of the period was SF1.4900 what is the effective after-tax cost of debt?