United Airlines inaugurated service to Japan and wants to finance the purchase of Boeing 747s to service that route. The CFO for United is attracted to yen financing because the interest rate on yen is 300 basis points lower than the dollar interest rate. Although he does not expect this interest differential to be offset by yen appreciation over the 10-year life of the loan, he would like an independent opinion before issuing yen debt.
a. What are the key questions you would ask in responding to UAL's CFO?
b. Can you think of any other reason for using yen debt?
c. What would you advise him to do, given his likely responses to your questions and your answer to Part b?