Question: Which is a better deal: borrowing at 1% in yen when the risk-free yen interest rate is 3% and the firms market-debt rate is 4%,

Which is a better deal: borrowing at 1% in yen when the risk-free yen interest rate is 3% and the firm’s market-debt rate is 4%, or borrowing in euros at 3% when the risk-free euro interest rate is 5% and the firm’s market-debt rate is 6%? Assume that uncovered interest rate parity holds and that the corporate tax rate is 34%.

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