When determining the tax shields associated with borrowing foreign currency,the ________ is an important factor.

Question

Quizplus · Accepted Answer

The expected change in foreign exchange rates leading to capital gains or losses is an important factor when determining the tax shields associated with borrowing foreign currency. The value of tax shields will depend on the difference between the interest rate on the foreign currency loan and the expected foreign exchange rate at which the loan will be repaid. If the borrower expects the foreign currency to depreciate against their domestic currency, they will have a larger tax shield due to the capital gains or losses from the foreign exchange rate difference.

When Determining the Tax Shields Associated with Borrowing Foreign Currency,the