When A Firm Borrows Funds From The Global Capital Market, It Must Weigh The Benefits Of A

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When A Firm Borrows Funds From The Global Capital Market, It Must Weigh The Benefits Of A

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lower interest rate against the risks of an increase in the real cost of capital due to adverse exchange rate movements. When a firm borrows funds from the global capital market, it must weigh the benefits of a lower interest rate against the risks of an increase in the real cost of capital due to adverse exchange rate movements. Although using forward exchange markets may lower foreign exchange risk with short-term borrowings, it cannot remove the risk. Most important, the forward exchange market does not provide adequate coverage for long-term borrowings.

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