The Sports Exports Company continues to focus on producing footballs in the U.S. and exporting them to the United Kingdom. Its exports are denominated in pounds, which has continually exposed the firm to exchange rate risk. The company is now considering a new form of expansion, in which it would sell specialty sporting goods in the U.S. If it pursues this U.S. project, it would need to borrow long-term funds.  The dollar-denominated debt has an interest rate that is slightly lower than the pound-denominated debt.

1. Jim Logan, owner of the Sports Exports Company, needs to determine whether dollar-denominated debt or pound-denominated debt would be most appropriate for financing this expansion, if he does expand. He is leaning toward financing the U.S. project with dollar-denominated debt, since his goal is to avoid exchange rate risk. Is there any reason why he should consider using pound-denominated debt to reduce exchange rate risk?

2.