Interaction between Financing and Invoicing Policies Assume that Hurricane, Inc., is a U.S. company that exports products to the United Kingdom, invoiced in dollars. It also exports products to Denmark, invoiced in dollars. The company currently has no cash outflows in foreign currencies, and it plans to issue bonds in the near future. Hurricane could likely issue bonds at par value in (1) dollars with a coupon rate of 12 percent, (2) Danish krone with a coupon rate of 9 percent, or (3) pounds with a coupon rate of 15 percent. It expects the krone and pound to strengthen over time. How could Hurricane revise its invoicing policy and make its bond denomination decision to achieve low financing costs without creating an excessive exposure to exchange rate fluctuations?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 18, Problem 12QA
Textbook Problem

Interaction between Financing and Invoicing Policies Assume that Hurricane, Inc., is a U.S. company that exports products to the United Kingdom, invoiced in dollars. It also exports products to Denmark, invoiced in dollars. The company currently has no cash outflows in foreign currencies, and it plans to issue bonds in the near future. Hurricane could likely issue bonds at par value in (1) dollars with a coupon rate of 12 percent, (2) Danish krone with a coupon rate of 9 percent, or (3) pounds with a coupon rate of 15 percent. It expects the krone and pound to strengthen over time. How could Hurricane revise its invoicing policy and make its bond denomination decision to achieve low financing costs without creating an excessive exposure to exchange rate fluctuations?

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