Botany Bay Corporation of Australia seeks to borrow US$30,000,000 in the eurodollar market. Funding is needed for two years. Investigation leads to three possibilities. Compare the alternatives and make a recommendation.
1. Botany Bay could borrow the US$30,000,000 for two years at a fixed 6% rate of interest.
2. Botany Bay could borrow the US$30,000,000 at LIBOR + 1.500%. LIBOR is currently 3.500%, and the rate would be reset every six months.
3. Botany Bay could borrow the US$30,000,000 for one year only at 4.500%. At the end of the first year Botnay bay would have to negotiate for a new one-year loan.