Textbook Problem

Financing Foreign Business with Foreign Debt An energy company based in Houston, Texas, has substantial operations in Canada and generates much revenue in Canadian dollars. It borrows funds denominated in Canadian dollars (rather than U.S. dollars) to finance its Canadian operations. Write a short essay that explains the potential benefits from such a strategy. Explain the possible disadvantages that might occur when some U.S.-based MNCs attempt this strategy in a country where interest rates are high. Also consider alternative solutions such as selling forward contracts or not hedging.