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Ray Atkinson
Ray Atkinson, Graduate Student
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Experience:  Inner-city high school substitute teacher. Degrees in mathemetics, accounting, and education. Years and years of tutoring.
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It is May 1985 and UAL, Inc., parent of United Airlines, needs

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It is May 1985 and UAL, Inc., parent of United Airlines, needs to borrow $500 million to finance the purchase of Hertz. You are Assistant Treasurer and must make a recommendation about the choice between borrowing in the USA in U. S. Dollars or in Japan in Yen (¥). If the loan is in U. S. Dollars in the USA, company policy requires the use of a specific investment banker. This firm describes the terms of the USA loan as follows: An interest rate of 11% per year paid semi-annually in December and June for 10 years. The principal of $500 million would be repaid at the end of the 10-years. There would be a one-time underwriting fee of 0.5% to be paid when the loan funds are received.

A leading Japanese bank is offering a loan with the interest and principal denominated in Yen. The interest rate will be 5% and there are no upfront fees. Both loans require interest payments in December and in June. The entire principal is due in June 1995.

In May 1985, the exchange rate fluctuated between 250 and 252 yen to the dollar. For convenience, use 250 ¥ to the $ as the exchange rate in May 1985. Each student must (a) recommend one alternative and (b) discuss why your alternative is wise.

You can find historical currency rates at This link is provided to allow the reader to check the exchange rates included in the case.
Do you want me to set this up in a spreadsheet?
Customer: replied 3 years ago.

Yes please

Okay, will do. How soon do you need it?
Customer: replied 3 years ago.

By 10:00pm

I assume that you are in the Eastern Time Zone and you need it in an hour. Off I go.
Customer: replied 3 years ago.

Yes thank you


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Customer: replied 3 years ago.
Is their more details to the compassion of the US dollar to the yen ?

It is stated to use ¥250=$1. Do you want me to run through the exchange rates for each payment?

Customer: replied 3 years ago.
Ok thanks
Customer: replied 3 years ago.
Yes please
Please note that only goes back to 1990 for historical rates. Finding the rates in 1985-1995 is going to take some time. I recommend turning in the work I have done so you are not late, and I will get the rates. It is likely not going to make any significant difference.
Customer: replied 3 years ago.
Is there any detail to what formulas in excel that was used to get the rates for each bank
I multiplied by 250 for the ¥. I see that the exchange rates changed *quite* significantly from 1985 to 1995. I will make the adjustments.
Customer: replied 3 years ago.
It is still going to take me some time.
I made a major mistake and I am so glad you had me run through the semi-annually rates. I assumed that they did not change radically, but they did. I am remaking the entire chart to reflect my findings.

Point out to your instructor that the link he is using is outdated.
It is still a better deal to go with the Japanese bank, but not as huge of a difference as I thought.

Attachment: 2012-11-26_032606_yen_wins.xls

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