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sir if interest parity is not relevant , and a company is for example looking to finance operations in a foreign country , what would be the best course of action for short term financing, if its initially thinking of borrowing home currency at a lower rate than foreign currency?
Thanks alot
Why do you say that interest rate parity is not relevant? If the interest rate for borrowing the home currency is less than that of the foreign currency, then there is likely to be adverse movement on the exchange rate.
There is no rule here – on the one hand there is an obvious benefit by borrowing at the lower rate, but on the other hand they are more at risk from exchange rate movements.
Were it longer term borrowing then they would be best to consider a swap arrangement.
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