Nestlé wishes to obtain a loan denominated in Swiss francs but the U.S. market offers better credit terms. What should Nestlé do?

Question

Quizplus · Accepted Answer

Nestlé should borrow dollars in the United States, exchange for francs, and arrange a currency swap. This is because the U.S. market offers better credit terms, which means that Nestlé can borrow at a lower interest rate. By borrowing in dollars and exchanging for francs, Nestlé can take advantage of these lower rates. A currency swap can then be arranged to convert the borrowed dollars back into francs, thereby avoiding exchange rate risk.

Nestlé Wishes to Obtain a Loan Denominated in Swiss Francs