In August 2002, the French retail giant Carrefour S.A. was considering alternative currencies for raising (euro) EUR750 million in the Eurobond market. Its investment banks, Morgan Stanley and UBS Warburg, had suggested that Carrefour to consider borrowing in British pound sterling in order to take advantage of a borrowing opportunity in the currency in Carrefour attempt of fund it expansion. This report was commissioned by a junior financial analyst Sikhumbuzo Bhengu in request by Carrefour S.A.’s CFO Barry Strydom. The report was requested in order to identify the cost effective currency in which the firm should issue the bond to that currency denominated, and it f turn that foreign currency is effective then the hedging strategy required to hedge exchange rate risk. The report required to be completed and handed in on the 3rd of October 2011.
1.2 Method of investigation
This problem solving report is performed on the basis of the information in hand and the report was not been expanded beyond the scope of the data information provided by Carrefour S.A. There is no internet research conducted on the Carrefour S.A. position in the market. It is assumed that the information provided in the case study regarding Carrefour S.A. is true and accurate. The interest rate parity is the main underlying theory that is used in this report. The excel spread sheet is only used and there is no other complex program used.
1.3 Problem definition
In the summer of 2002, Carrefour S.A. is seeking to raise €750 million debt financing at a low costs by issuing it bond either in domestic country’s (France) currency or issue foreign currency denominated bond in the Eurobond market. In August 2002, Carrefour S.A.’s investment banks (Morgan Stanley and UBS Warburg) had expected that the Carrefour 10-year bonds can be issued at 5.25% in Euros, 5.375% in British pounds, 3.625% in Swiss francs, and 5.5% in U.S. dollars. It is assumed that these bonds are issued at...