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5) Turkish subsidiary of an US company wants to borrow TL500 mn for 5-years for factory...

5) Turkish subsidiary of an US company wants to borrow TL500 mn for 5-years for factory capacity expansion investment. Annual interest rate on a 5-year loan for 5 years is 10% in TL and 5% in USD. Spot rate of USDTL is 7 and TL is expected to appreciate by 5% each year in the next five years. Compare and decide which debt denomination is better (US$ or TL).

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Expert Solution

Since TL IS GOING TO APPRECIATE IN FUTURE IT IS BEETR FOR COMPANY TO BORROW IN TL

jeff jeffy answered 2 years ago
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