PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 13, Problem 13PS
- a. “I notice that short-term interest rates are about 1% below long-term rates. We should borrow short-term”
- b. “I notice that interest rates in Japan are lower than rates in the United States. We would do better to borrow Japanese yen rather than U.S. dollars.”
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Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of
multinational companies.
Consider the following statement:
Countries with lower inflation rates will have lower interest rates.
Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid
or invalid.
O The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would
result in lower interest rates
O The statement is invalid, because the nominal interest rate is independent of the inflation rate.
The currency of a country with a higher inflation rate than the U.S. inflation rate will
over time against the dollar.
Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the
operations and profitability of multinational companies.
Consider the following statement:
If companies borrow from countries with low interest rates, the potential
gains from the interest savings will likely be multiplied when the lending
country's currency appreciates.
Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether
the preceding statement is valid or invalid.
The statement is invalid, because as the currency of the lending country appreciates, it becomes more
expensive for the borrowing company to repay the initial loan.
The statement is valid, because as the currency of the lending country appreciates, it becomes cheaper to
repay the initial loan and thus increase savings.
If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be
by the…
Chapter 13 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 13 - Market efficiency True or false? The...Ch. 13 - Prob. 2PSCh. 13 - Market efficiency Which (if any) of these...Ch. 13 - Prob. 4PSCh. 13 - Market efficiency How would you respond to the...Ch. 13 - Market efficiency Respond to the following...Ch. 13 - Prob. 7PSCh. 13 - Prob. 8PSCh. 13 - Market efficiency evidence Which of the following...Ch. 13 - Prob. 10PS
Ch. 13 - Prob. 11PSCh. 13 - Prob. 12PSCh. 13 - Market efficiency implications What does the...Ch. 13 - Prob. 14PSCh. 13 - Prob. 15PSCh. 13 - Abnormal returns Here are alphas and betas for...Ch. 13 - Prob. 18PSCh. 13 - Behavioral finance True or false? a. Most managers...Ch. 13 - Prob. 20PSCh. 13 - Prob. 21PSCh. 13 - Prob. 22PS
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