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Expansion into Foreign Market

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Please help with the following international finance problem.

If you were an investor or business manager looking to expand into a foreign market, would you borrow from a domestic bank or consider borrowing from a financial institution in the target country? What conditions would you base your decision on? What might change your mind to consider the other option?

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Solution Summary

The solution examines expansion into the foreign market. The conditions to base the decision on regarding expansion is provided.

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Answer:
Borrowing decisions are based on two factors:
(i) Cost of borrowing
(ii) Currency exchange risk

Cost of borrowing: cost of borrowing is the main deciding factor to decide the best place to borrow. Interest rate is the main cost of borrowing so if there is low interest rate in the domestic ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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