| Course | GF581 Financial Strategies for a Global Environment |
|---|---|
| Unit | Unit 9 |
| Paper type | International financing memo |
| Length | About 790 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF581 Unit 9
Borrow Where the Revenue Is: A Unit 9 International Financing Memo for a Thai Plant Expansion
[Student Name]
Purdue University Global
GF581: Financial Strategies for a Global Environment
Unit 9 International Financing Memo
[Instructor Name]
[Date]
The membrane maker, its subsidiary, the loan quotes and every figure are composite and illustrative; the articles and textbook cited are real.
Memorandum
To: Chief Financial Officer From: Treasury Manager Date: April 14, 2026 Re: Funding 400 million baht of the second Rayong line
Recommendation
Borrow 240 million baht locally from a Thai bank at 3.40 percent, matching the plant's baht revenue, and fund the remaining 160 million baht, about $4.71 million, with a dollar loan from the parent, matching the plant's dollar export revenue. Do not fund the whole amount in either currency.
The Two Quotes
Baht term loan. A Bangkok bank offers 400 million baht for five years at 3.40 percent, secured on the new equipment.
Dollars from the parent. The parent can borrow in Milwaukee at 5.60 percent and lend to the subsidiary in dollars at the same rate.
Comparing the Cost in Dollars
The baht rate looks cheaper, but the parent must eventually measure the cost in dollars. The one-year forward prices in a baht roughly 2.46 percent dearer against the dollar each year. A baht loan repaid in a strengthening baht costs more in dollars than its interest rate suggests: 1.034 times 1.0246, less one, is about 5.94 percent a year, slightly above the 5.60 percent dollar rate. This is interest rate parity at work: the lower baht rate is offset by the baht's expected rise (Eiteman et al., 2016).
Break-even. The baht loan is cheaper in dollar terms whenever the baht strengthens by less than about 2.13 percent a year, which is 1.056 divided by 1.034, less one.
Scenarios
The dollar cost of the baht loan under four baht paths:
1. Baht strengthens 4 percent a year: about 7.54 percent.
2. Baht strengthens 2.46 percent, as forward rates imply: about 5.94 percent.
3. Baht holds steady: 3.40 percent.
4. Baht weakens 3 percent a year: about 0.30 percent.
On expected values the two choices cost almost the same. The difference lies in which scenarios hurt.
Because the plant earns most of its revenue in baht, a baht loan rises in dollar cost only when the plant's baht earnings rise in dollar value too, so local debt hedges the parent's investment, while dollar debt on a baht-earning plant would add currency risk exactly when the baht falls.
Matching Debt to Revenue
About 60 percent of the plant's sales are invoiced in baht to Thai customers and about 40 percent in dollars to regional distributors and exporters. Funding 60 percent of the 400 million baht, 240 million, in baht and 40 percent, 160 million, in dollars aligns each loan with the revenue that will repay it. Research on East Asian firms found that companies whose foreign debt was matched by foreign-currency revenue suffered far less in the 1997 crisis than those with unmatched dollar debt (Allayannis et al., 2003).
Taxes
The line has a three-year corporate tax exemption in Thailand, so interest paid by the subsidiary saves no Thai tax in those years; after that, it saves tax at 20 percent. Interest paid by the parent on its Milwaukee borrowing is deductible in the United States at 21 percent. The intercompany loan's interest is income to the parent and an expense to the subsidiary, so it does not change the group's total much, but it does move cash to the parent regularly. Research on multinational capital structure finds that firms use internal loans to place debt where its tax value is highest and to reach markets where external borrowing is costly (Desai et al., 2004).
Covenants and Security
The Thai lender wants the subsidiary's own cash flow to cover principal and interest at least 1.5 times. On forecast cash flows, the 240 million baht loan keeps coverage near 3 times. A full 400 million baht loan would bring coverage nearer 1.9 times, leaving less room in a weak year.
Why Not Swap the Dollar Loan Into Baht
The parent could borrow all 400 million baht worth in dollars and swap the loan into baht with a cross-currency swap, achieving the same currency match. Quotes for five-year baht swaps were obtained but carried a spread of about 0.30 percentage points above the direct baht loan, and the swap would add a second counterparty and documentation. Direct local borrowing achieves the match more cheaply for the baht portion.
Next Steps
Sign the 240 million baht facility, document the $4.71 million intercompany loan on arm's-length terms, and review the split annually as the plant's revenue mix changes.
References
Allayannis, G., Brown, G. W., & Klapper, L. F. (2003). Capital structure and financial risk: Evidence from foreign debt use in East Asia. The Journal of Finance, 58(6), 2667-2710. https://doi.org/10.1046/j.1540-6261.2003.00619.x
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
Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2016). Multinational business finance (14th ed.). Pearson.
Reading the GF 581 Unit 9 instructions
In the ninth GF581 unit you advise on how a foreign investment should be financed. State the recommendation first. Present the borrowing options with their rates. Convert the foreign-currency rate into home-currency terms using the expected exchange rate path, and compute the break-even currency move. Show scenarios under several currency paths. Explain how matching debt to the currency of revenue affects risk, with research support. Address taxes, including any tax holiday that changes the value of interest deductions, and the role of intercompany loans. Check covenants under each option. Consider alternatives such as cross-currency swaps. Finish with next steps, supported by a textbook and by studies of foreign debt and internal lending listed in APA 7.
How this GF581 Unit 9 example is built
The memo's recommendation leads, followed by the two quotes. A cost comparison converts the baht rate into dollar terms and explains the parity logic, citing Eiteman, Stonehill and Moffett, and gives the break-even. Four scenarios show the baht loan's dollar cost under different paths. The highlighted sentence explains why local debt hedges the parent's investment. A matching section uses the plant's 60-40 revenue split, citing Allayannis, Brown and Klapper on East Asian foreign debt. A tax section notes the exemption years and the parent's deduction, citing Desai, Foley and Hines on internal loans. A covenant section compares coverage, a note explains why a cross-currency swap was rejected, and next steps close the memo.
Reading the GF581 Unit 9 grading rubric
GF581 financing memos are graded on correct conversion of foreign borrowing costs into home-currency terms and a reasoned treatment of currency risk. Graders check the expected-cost calculation, the break-even and the scenarios. The largest analytical share rewards arguing for currency matching with evidence, rather than choosing the lower nominal rate. Attention to tax holidays and intercompany loans shows depth. Covenant checks and alternatives considered demonstrate practical judgment. Instructors in the MS in Finance program value a recommendation tied to the subsidiary's revenue mix with a review mechanism. A memo that leads with its answer, with Allayannis and Desai cited in APA 7, completes the rubric. Graders also notice when the memo explains why a cross-currency swap or a single-currency loan was set aside.
GF581 Unit 9 help from the desk
Many GF581 Unit 9 memos choose the loan with the lowest interest rate without converting it into home-currency terms, missing that a low-rate currency is expected to strengthen. Others recommend all-dollar borrowing for a subsidiary earning mostly local currency, adding the mismatch that hurt firms in 1997. Tax holidays are overlooked, so interest deductions are valued at a rate the subsidiary does not pay. Covenants are not checked. Scenarios are missing, so the reader cannot see which currency path hurts which choice. For any financing your case presents, keep the steps: options, home-currency cost, break-even, scenarios, currency matching, taxes, covenants, alternatives and a recommendation.
Get a GF581 Unit 9 example written to your instructions
Local and parent borrowing rates, the subsidiary's revenue mix and any tax terms your Unit 9 case sets out are the inputs, along with the prompt and rubric. Back comes a memo that converts both options into one currency, finds the break-even and recommends a funding mix, delivered within 24-48h at no charge for the first. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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- GF581 Unit 2: Baht and Yen Exchange Rate Exercise
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- GF581 Unit 4: Yen Exposure Hedging Decision Memo
- GF581 Unit 5: ASC 830 Translation Exposure Review
- GF581 Unit 6: Baht Float 1997 Seminar Reflection
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- GF581 Unit 10: Global Finance Strategy Report
- GF570 Unit 9: Rebalancing Cost Memo for a Foundation
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GF581 Unit 9 questions, answered
How do I compare interest rates in two currencies?
Convert the foreign rate into home-currency terms by compounding it with the expected change in the exchange rate, then compare. Forward rates or interest rate parity give a defensible expected change. Because the result depends on that expectation, add a break-even: the rate of appreciation at which the two loans cost the same. That figure is often more useful to a reader than either cost alone.
Does borrowing locally reduce currency risk?
It reduces the mismatch when the subsidiary earns in the local currency, since debt service and revenue then move together. It can also offset part of the parent's translation exposure, because local liabilities shrink in dollar terms when local assets do. It does not help a subsidiary that exports in dollars; for that one, dollar debt may be the better match.
Should tax holidays affect the financing choice?
Yes, and assignments often reward noticing it. An interest deduction is worth the tax rate it saves, so in years when the subsidiary pays no local tax the deduction is worth nothing there. Borrowing where the deduction has value, subject to that country's limits and transfer pricing rules, can lower the group's after-tax cost even when the pre-tax rate is higher.
Where can I find a free GF581 Unit 9 sample paper?
A full GF581 Unit 9 international financing memo is on this page, comparing baht and dollar borrowing for a Thai expansion with expected costs, scenarios, tax and covenant checks and APA 7 references.
Why is the 3.40 percent baht loan not clearly cheaper?
The baht is expected to strengthen about 2.46 percent a year, so repaying baht costs more dollars over time. Combined, the baht loan's expected dollar cost is about 5.94 percent, slightly above the 5.60 percent dollar rate.