International Financial Management - Currencies and Costs Essay

International Financial Management - Currencies and Costs - Essay ExampleThat is, the prospect of issuing unconnected debt is highly correlated with the degree of foreign operations. Their precedes are consistent with those of Kedia and Mozumdar (2003), who conclude that firms dedicate to satisfy a demand to hedge via foreign debt. Kedia and Mozumdar (2003), also conclude that the correlation between foreign operations and the probability of issuing foreign debt is consistent with both the role of foreign debt as a hedging instrument and the existence of information barriers.The integration of neat markets implies that financial assets traded in different markets should occupy the same risk/return characteristics. Kedia and Mozumdar (2003) however note that the segmentation of capital markets and barriers to international investment could result in opportunities for choosing the currency of debt to minimize accompaniment costs (interest rates). Kedia and Mozumdar (2003) identi fy two sources of segmentation including legal barriers and Informational sources. fit in to them legal barriers which constitute a broad variety of restrictions such as differences in tax intercession for foreign and domestic investments, capital controls, security law, and ownership restrictions could give rise to opportunities for multinational companies to reduce their funding rates. It is also evident in the study by Kedia and Mozumdar (2003) that foreign investors face high costs of conference information about capital markets in different countries and as such domestic companies take reinforcement of this information asymmetry to issue debt at a low cost than they would have issued to domestic investors. harmonize to Keloharju and Niskanen (2001), issuing in the Euromarket may be more economical since it helps to mitigate withholding taxes and capital controls. They hike up illustrate that acceptance cost in two currencies can be reduced by borrowing the weaker currency and that tax laws in Finland encourage companies to borrow the foreign currency.Allayannis et al (2003 pp 2669) in their study of the capital structure and financial risk of East Asian Firms with particular emphasis on foreign-currency debt use, provide exhibit that differences in home country interest rates and foreign interest rates such as the London Interbank Offered Rate (LIBOR), are important determinants for both home country and foreign debt use. The study finds that the higher(prenominal) (lower) the difference in interest rates, the