In summer 2002, with total sales of (euro) EUR53.9 billion from more than 5,200 stores, Carrefour S.A was French largerst retailer. Carrefour S.A was considering alternative currencies for raising (euro ) EUR 750 million in the Eurobond market. Its investment banks, Morgan Stanley and UBS Warburg, had suggested that carrefour to consider borrowing in british pounds sterling in order to take advantage of a borrowing opportunity in that currency in Carrefour attempt of fund it expansion.
Carrefour has a debt-financing requirement of EUR 750 million debt financing at a lowcost by issuing it bond either in domestic country’s (France) currency or issue forigen currency denominated bond in the Eurobond market and it chooses to issue a 10-year bond to finance the need. There are four choices of bond market, would be priced at a coupon rate of 5.25% in Euro, 5.375 in British Pound, 3.625% in Swiss Francs and 5.5% in US Dollars. Issuing in different currencies leads to different coupon rate, currency value and economic environments (including interest rete, inflation, and so on). In order to choose issuing in which currency is most efficient, comparison is needed.
From exhibit 7 we can get Spot Exchange Rate :
Row Currency/ | | | | |
Column Currency | Euro | British Pound | Swiss Franc | U.S Dollar |
Euro | 1 | 1.593 | 0.688 | 1.02 |
British Pound | 0.628 | 1 | 0.432 | 0.64 |
Swiss Franc | 1.453 | 2.315 | 1 | 1.482 |
U.S Dollar | 0.98 | 1.562 | 0.675 | 1 |
So, we can compute 750 million bond value for each currency and the annual payment
Bond value | 750 M Euro | |
Currency | Bond value (in M) | Coupon rate (in %) | Annual payment (in M) | Annual payment (in M €) |
Euro | € 750 | 5.25 | € 39.375 | 39.375 |
British Pound | £ 471 | 5.375 | £ 15.898 | 40.328 |
Swiss Franc | SF 1089.75 | 3.625 | SF 57.398 | 27.178 |
US Dollar | $ 735 | 5.5 | $ 40.425 | 41.233 |
Based on data above,...