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Chapter 20
Short-Term Financing
Lecture Outline
Sources of Foreign Financing
Internal Short-term Financing
External Short-term Financing
Access to Funding During a Credit Crisis
Financing with a Foreign Currency
Motivation for Financing with a Foreign Currency
Potential Cost Savings from Financing with a Foreign Currency
Risk of Financing with a Foreign Currency
Hedging the Foreign Currency Borrowed
Reliance on the Forward Rate for Forecasting
Use of a Probability Distribution to Enhance the Financing Decision
Financing with a Portfolio of Currencies
Chapter Theme
This chapter explains short-term liability management of MNCs. Financing with a foreign currency can
reduce the MNC’s costs, but it can expose the MNC to exchange rate risk. While foreign financing costs
cannot usually be perfectly forecasted, firms should evaluate the probability of reducing costs through
foreign financing.
