We are a major marketing campaign in Mexico. If we implement it, we will incur high expenses in pesos, and will need to finance the cost. To cover the cost, we can either borrow dollars at a low interest rate and convert them to Mexican pesos or borrow Mexican pesos. We expect to pay of the loan on monthly basis over the next year by using a portion of the revenue we generate from our business in Mexico.
Will our business be more exposed to exchange rate risk if we borrow dollars or pesos?
Explain how we would make decision to borrow dollars versus pesos. What is the key factor, other than interest rate of each currency, that will determine whether we borrow dollars or pesos?