Carrefour S.A.

t point of intersection S. A. is a large multinational corporation that aims to thin out EUR 750 million worth of debt. Consequently, Carrefour mustiness decide the market in which it wants to spotlight its bonds. The company had historically financed growth using securities denominated in the currency of its business operations. However, Carrefours investment banks, Morgan Stanley and UBS-Warburg, recently recommended get in British pounds sterling to take away advantage of a acceptance hazard in that currency.This recommendation tellms counter-intuitive prima facie, disposed(p) that the British coupon score is higher(prenominal) than those in all the other currencies, particularly the Swiss franc. Neverthe little, there atomic number 18 some(prenominal) reasons why investing in the British pound is a good idea. mend the nominal rice beer roam of the Swiss franc is cut back than that of the British pound, the real pastime localize of the British pound is lower be cause of the relatively higher inflation rate in the U. K. Moreover, the re-sentencing rate for GBP/EUR (. 628) appears more(prenominal) favorable than the exchange rate of CHF/EUR (1. 53). In addition, we rotter calculate the implied forward-moving evaluate to further help us with our decision. We rat use the formula F (f. c. /EUR) = (1+i(f. c. ))N/(1+i(EUR))N*S(f. c. /EUR) to finger the implied 10 year forward range The low forward rates for GBP/EUR aim that borrowing in British pounds is a wise choice. Next, we must use the implied forward rates to calculate the cash flows for separately currency (in Euros). This leave allow us to compare apiece currency and see which one has the smallest cash news leak (which is the beaver option, since we are issuing debt).We do this by finding the coupon payment in each currency and then dividing it by the implied forward rate for the suppress year. apply this information, we can see that the cash outflow for the GBP is the smal lest, which further suggests that borrowing in British pounds is advantageous. Plus, the cash outflow is greatest for the Swiss franc. We can also use a discounted cash flow analysis to hand our decision. We can take the cash flows we on the button calculated and discount them to the present cartridge holder using the risk free rate for each respective country and for the appropriate year.These numbers will be still more helpful and accurate because will they be in terms of straight offs dollars. See below at one time again, it is evident that the smallest cash outflow corresponds with the British pound. While the coupon rate for the GBP is higher, the exchange rate is more favorable, the real interest rate is actually lower, and the coupons paid are lower. All of these operators lead me to conclude that borrowing in British pounds is in the surmount interest of Carrefour. One final factor to consider is the markups that brokers typically charge to take shape money for thei r services.We can find the markup for each currency by subtracting the risk-free rate from the coupon rate. The markup for the Euro is 5. 25% 5. 087% = . 163%. The markup for the GBP is . 001%. The markup for the CHF is . 126%. The markup for the USD is . 087%. As we can see, the markup for the GBP is significantly lower than those of the other currencies. This suggests that the GBP is less risky and has a lower prospect of default than the other currencies. It is also another(prenominal) reason for borrowing in British pounds.