Question: Grupo Modelo S.A.B. de C.V. Grupo Modelo, a Mexican brewer, exports such well-known varieties as Corona, Modelo, and Pacifico, is Mexican by incorporation. However, the company evaluates all business results, including financing costs, in U.S. dollars. The company needs to borrow $10,000,000 or the foreign currency equivalent for four years. For all issues, interest is payable once per year, at the end of the year. Available alternatives are as follows:
a. Sell Japanese yen bonds at par yielding 3% per annum. The current exchange rate is ¥106/$, and the yen is expected to strengthen against the dollar by 2% per annum.
b. Sell euro-denominated bonds at par yielding 7% per annum. The current exchange rate is $1.1960/€, and the euro is expected to weaken against the dollar by 2% per annum.
c. Sell U.S. dollar bonds at par yielding 5% per annum. Which course of action do you recommend Grupo Modelo take and why?