A company wishes to obtain a loan denominated in yen but considers the US market to offer better terms.How can the company accomplish this?
A) Borrow yen in Japan, exchange for US dollars, and arrange a currency swap
B) Borrow yen in Japan, exchange for US dollars, and arrange an interest rate swap
C) Borrow dollars in the US, exchange for yen, and arrange a currency swap
D) Borrow dollars in US, exchange for yen, and arrange an interest rate swap

Question

Quizplus · Accepted Answer

The company can accomplish this by borrowing dollars in the US, where it finds better terms, then exchanging those dollars for yen to meet its needs. To manage the currency risk associated with this transaction, the company can arrange a currency swap, which will allow it to exchange the principal and interest payments on the loan from dollars to yen, matching its desired currency exposure.

A Company Wishes to Obtain a Loan Denominated in Yen