Why might a multinational corporation decide to borrow in a country such as Brazil, where interest rates are high, rather than in a country like Switzerland, where interest rates are low?

Explanation

Over the long run, due to high interest rates, the Brazilian currency will depreciate against the currency where the multinational company has its head office. Over the duration of debt, the Brazilian currency depreciation will make borrowing inexpensive. But if the company decides to borrow from Switzerland, where the interest rates are low, the currency appreciation of Swiss currency over the long run will likely make borrowing expensive.

Verified Answer

Long run currency depreciation will offset high interest costs.