A finished FIN-660 Topic 8 cross-border financing board paper example, testing dollar and euro debt against a 15 percent euro fall and netting the coupon gap against the forward rate. Searches like "fin 660 topic 8 assignment example", "fin660 topic 8 sample" and "fin-660 topic 8 example" land here.
What a finished FIN-660 Topic 8 cross-border financing board paper looks like
The finished paper works in illustrative millions at a spot rate of 1.10 dollars per euro, so the 550 euro price is 605 dollars. Dollar bonds would cost 6.0 percent and euro bonds 3.5, and the paper sets the coupon saving against the one-year forward rate of about 1.127, which sits roughly 2.4 percent above spot, close to the rate gap. The saving is therefore not free. The case for euros is matching. The group carries 1,000 of net debt against 400 of dollar EBITDA, and the target adds 60 euros of EBITDA. If the euro falls 15 percent, dollar borrowing leaves debt at 1,605 against 456.1 of EBITDA, about 3.52 times and past the 3.5 covenant; euro borrowing shrinks the debt with the earnings, to about 3.32.
How a FIN-660 Topic 8 example is structured
The paper is written for approval, so the resolution the board is asked to pass comes first. It names the amount, the currency, the tenor range, the hedge policy and the authority delegated to the chief financial officer. The exposure section distinguishes translation exposure on the target's balance sheet, transaction exposure on contracted flows and economic exposure on the unit's competitive position. A cost section compares the two coupons and removes the illusion of savings with covered interest parity. The stress section applies a 15 percent euro fall to leverage under each option and tests the result against the covenant. A rejected-alternatives section answers why not dollar bonds, which offer a deeper market and the group's existing curve, and why not leave hedging to treasury's discretion. The paper closes with the reporting the board will receive and the limits that would trigger a return to it.
The resolution stated before the analysis
Directors see the exact approval sought, euro borrowing of up to 550 with a hedge policy and delegated limits, before any figure argues for it.
A coupon saving the forward rate removes
Borrowing at 3.5 rather than 6.0 looks cheaper, but a forward rate of about 1.127 already sits above spot by roughly that margin.
Three exposures, one of them financed
Euro debt offsets the translation exposure on the target's balance sheet, while transaction and economic exposure are named and handled separately.
A euro fall tested against the covenant
A 15 percent drop takes dollar-funded leverage to about 3.52 times, past the 3.5 limit, while euro funding holds it near 3.32.
Dollar bonds weighed and declined
The deeper dollar market and the group's existing curve are real advantages, and the paper declines them because they leave the covenant exposed to the euro.
Where marks go in FIN-660 Topic 8
Recommending euro debt because its coupon is lower is the error graders catch first, since covered interest parity builds the rate gap into the forward rate, and an unhedged saving is a bet against it. Papers that describe currency risk in general without testing it on the covenant leave directors unsure whether it matters. Confusing translation, transaction and economic exposure produces a hedge aimed at the wrong risk. A board paper that buries the resolution, or asks approval for financing without stating limits and delegated authority, hands management a blank check the directors did not mean to write. Dismissing dollar bonds without granting their advantages reads as advocacy rather than analysis. Omitting what the board will be told afterward, and what would bring the decision back, leaves a hard-to-reverse choice with no oversight once it is made.
Get a FIN-660 Topic 8 example written to your instructions
Send the FIN-660 Topic 8 instructions and your classroom rubric, with the transaction and financing case your section supplies. We write a custom example to them, with the resolution stated first, each financing option costed through the forward rate, a currency shock tested against the covenant, the exposures distinguished and the rejected alternative answered, in 24 to 48 hours. The first one is free.
FIN-660 Topic 8 questions, answered
What is covered interest parity?
The relationship that ties the forward exchange rate to the interest rate gap between two currencies. If dollar rates are 6.0 percent and euro rates 3.5, the one-year forward prices the euro about 2.4 percent above spot, so borrowing euros and hedging the repayment costs about the same as borrowing dollars. A lower foreign coupon is therefore a saving only if the currency strengthens less than the forward implies.
Why does matching the currency of debt protect the covenant?
Because the covenant is tested in dollars on earnings that are partly in euros. When the euro falls, the target's earnings shrink in dollar terms; dollar debt stays the same size, so leverage rises. Euro debt shrinks in dollar terms at the same time, so the ratio does not rise. In the example that difference is 3.52 against 3.32 times, on either side of a 3.5 limit.
Is this how a real board should fund a foreign acquisition?
The paper cannot answer that. The group, the target, both interest rates, the exchange rates and the covenant are illustrative, and rates and currencies change constantly. Actual financing turns on current market terms, the accounting and tax treatment of any hedge, lender agreements and advice from treasury specialists and auditors. The paper is FIN-660 coursework on a cross-border financing decision, not financial advice.