| Course | FIN 336 Multinational Corporate Finance |
|---|---|
| Module | Module 6 |
| Paper type | undergraduate discussion post on financing a foreign subsidiary |
| Length | About 380 words, 3 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Finance |
| Updated | October 2026 |
Free sample paper for FIN 336 Module 6
Module Six Discussion
Reais Debt, Dollar Debt or Both
The composite Sioux Falls company in our course needs about R$100 million of debt, roughly $18 million, to build its Mato Grosso plant. A São Paulo bank has quoted a five-year loan in reais at the interbank rate plus 2 points, around 17 percent today. The parent can borrow dollars in the U.S. at about 6.5 percent and lend them on to the subsidiary. At first glance the dollar loan saves more than 10 points a year.
Interest rate parity says the gap between the two rates roughly equals the real's expected decline against the dollar. If the real loses about 8 to 10 percent a year, the subsidiary will need that many more reais each year to repay dollars, and the advantage disappears. If the real falls faster, as it did in 2024, the dollar loan becomes the expensive one. Du and Schreger (2016) show that investors charge a separate premium on Brazilian debt in reais, so the 17 percent rate also includes compensation for risks beyond expected inflation, which is part of why it looks so high.
The plant will sell to cooperatives in reais. If its debt is also in reais, a weaker real lowers the dollar value of revenue and debt at the same time, so the plant can always repay. With dollar debt, a falling real raises the cost of repayment just when dollar revenue drops. In the survey by Graham and Harvey (2001), chief financial officers who issued debt abroad most often gave this natural hedge as their reason. Desai et al. (2004) found that multinationals lend more internally to affiliates where local credit is expensive and that their affiliates in high-tax countries carry more debt, because interest is deductible. Both points favor some parent lending, but not all.
I would fund about two thirds of the debt in reais, partly through Brazil's development bank equipment credit, which is cheaper than commercial loans, and lend the rest from the parent in dollars. That keeps the plant's main risk matched while capturing part of the tax benefit of internal debt.
Could a cross-currency swap give the subsidiary real-denominated debt at a lower rate than the São Paulo bank's quote, and what new risk would the swap add?
References
Desai, M. A., Foley, C. F., & Hines, J. R. (2004). A multinational perspective on capital structure choice and internal capital markets. The Journal of Finance, 59(6), 2451-2487. https://doi.org/10.1111/j.1540-6261.2004.00706.x
Du, W., & Schreger, J. (2016). Local currency sovereign risk. The Journal of Finance, 71(3), 1027-1070. https://doi.org/10.1111/jofi.12389
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
What the FIN 336 Module 6 instructions ask for
The Module Six discussion in FIN 336 asks how multinational firms finance their foreign operations, and many versions set up a choice between borrowing locally in the foreign currency and borrowing at home in dollars. You may be asked about the cost of capital for a multinational, internal financing through parent loans, the role of development banks or the use of currency swaps. The best initial posts take a side on a specific case, compare the apparent interest rates with the expected cost after exchange rate changes and explain how the choice affects the firm's currency exposure. Plan on a main post of a few hundred words, a source or two and two replies that push classmates' reasoning further.
How this FIN 336 Module 6 discussion example is built
This sample continues the course's composite Sioux Falls manufacturer, which needs about R$100 million of debt for its Mato Grosso plant. It lays out a Brazilian bank loan at roughly 17 percent and a dollar loan near 6.5 percent that the parent would lend on to the subsidiary. Using interest rate parity, it shows the gap mostly reflects the real's expected decline, so dollar debt is cheaper only if the real holds its value. It then explains why real-denominated debt hedges the plant's real revenue, notes what Desai and colleagues found about internal loans and taxes, and recommends about two thirds in reais, partly from development bank equipment credit. It ends with a question about swaps.
Where the FIN 336 Module 6 rubric puts the points
Posts in this discussion are usually graded on understanding of international financing choices, correct use of concepts such as interest rate parity and currency exposure, how well the ideas fit the company in question, sources and the replies. The best posts explain why a low nominal rate in a strong currency is not a free saving, connect the currency of debt to the currency of revenue and acknowledge tax and legal factors. Weaker posts pick the lowest interest rate without considering exchange rates or describe financing options in general terms with no recommendation. A reply scores well if it pushes on a peer's financing choice with a risk they missed or an option such as a cross-currency swap.
FIN 336 Module 6 help: the mistakes that cost points
A frequent misstep in this discussion is comparing a 17 percent loan with a 6.5 percent loan and stopping there. Ask what happens to the dollar loan's cost in reais if the real falls 10 percent, since the subsidiary would need more reais to repay the same dollars. Interest rate parity tells you the expected cost of the two loans is close once currency moves are included. The real difference is risk: which loan rises in cost exactly when the plant's revenue falls in dollar terms. Bring in one practical factor, such as development bank credit, tax deductibility or the parent's credit rating. In your replies, ask whether a swap could give the subsidiary local currency debt at a better rate.
Get FIN 336 Module 6 written to your instructions
Post the FIN 336 Module 6 discussion prompt and the financing options in your case. We compare the currencies and rates, explain the hidden currency cost and recommend a mix with reasons, ending on a question for peers. Two days or less, first post free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
More FIN 336 papers and related BS Finance samples
- FIN 336 Module 1 Discussion: Why a Grain Bin Maker Looks to Brazil
- FIN 336 Module 2 Exchange Rates Assignment: What Moves the Real Against the Dollar
- FIN 336 Module 3 Currency Risk Assignment: Hedging a Receivable in Reais
- FIN 336 Module 4 Project One: Country and Currency Risk in Brazil
- FIN 336 Module 5 International Capital Budgeting Assignment: Valuing a Plant in Mato Grosso
- BUS 225 Module 5 Business Writing Assignment: An Email the Owner Will Actually Read
- QSO 340 Module 1 Projects and Operations Discussion
- BUS 400 Module 8 Discussion: What Leading Change in a Family Firm Teaches
- ACC 311 Module 3 Process Costing Assignment: Equivalent Units on the Moldboard Line
FIN 336 Module 6 questions, answered
Where can I find a free FIN 336 Module 6 Discussion sample?
This page contains the complete FIN 336 Module 6 post on whether a U.S. firm should fund its Brazilian plant in reais or dollars.
Is borrowing in a low-interest currency always cheaper?
No. If the borrower earns in a currency expected to weaken, the cost of repaying the low-interest loan rises as the currency falls, which can erase the rate advantage.
What is a natural hedge in financing?
Borrowing in the same currency as a project's revenue so that a currency move lowers the value of debt and revenue together, keeping the project's ability to repay steady.
Why do parents lend to their foreign subsidiaries?
Internal loans can be cheaper where local credit is expensive or scarce, and interest paid to the parent may be deductible in the subsidiary's country, within transfer pricing and thin capitalization limits.
What is a cross-currency swap?
An agreement to exchange principal and interest payments in one currency for payments in another, letting a firm borrow where it is cheapest and convert the debt into the currency it needs.