# Carrefour

Submitted By jug33
Words 485
Pages 2
Connor Matuszewski
29 February 2016
Carrefour S.A Case

In 2002, Carrefour S.A. is the largest European retailer with total sales of 53.9 billion euros and retail outlets in 26 countries. To fund and maintain its “expansion trajectory”, Carrefour needs to raise 750 million euros through taking on debt. The company has traditionally issued debt in euros, but is considering three other options to issue a 10-year Carrefour bond. The bond would be issued at par with four possible coupon rates: 5.25% in euros, 5.375% in British pounds, 3.625% in Swiss francs, or 5.5% in U.S. dollars. At first glance it might appear that issuing in Swiss francs is clear because of it has the lowest coupon rate, but Carrefour’s investment banks have recommended borrowing in British pounds. This analysis will reevaluate the company’s options. The initial criteria is calculate the fair forward rates of the currencies using the Implied Forward Rate: F(f.c./EUR) = (1+i(f.c.))N/(1+i(EUR))N*S(f.c./EUR)

In the formula, F(f.c./EUR) is the forward rate for N years, (1+i(f.c.))N will be the interbank interest rate for N years maturity of dollars, pounds, or francs, (1+i(EUR))N represents the interbank interest rate of euros with an N year maturity, and S(f.c./EUR) is the prevailing spot rate exchange rate. Using the interbank rates and cross exchange rates gives the implied forward rates for the next ten years:

With the implied forward rates, we can now calculate the cost of debt associated with issuing a 10 yr. bond in different currencies. The cost of debt in each currency is calculated by first converting 750 million euros to pounds, francs, and dollars. Coupon payments are calculated by multiplying by the respective coupon rate and respective implied forward rate for years 1 through 10. The…...

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