Question

Lantana Co. pays for many imports denominated in Canadian dollars. It is a major exporter to France and invoices the exports in euros. It also has much business in U.S. dollars. It has no other international business and does not hedge its transactions. It is about to obtain a small loan. It could reduce its exchange rate risk if its loan is denominated in:

Answer 1

Euros

Step-by-step explanation:

First of all, Lantana Co is a major exporter to France, this means that huge business is done with France and the invoices are all in Euros. Hence, comparing the Canadian dollars and the United States Dollars to the Euro, it is clear that the Euro is higher in the exchange market as compared to these two currencies. Hence, if a loan is sort, in order to reduce exchange rate risk, it is better to take a loan denominated in Euros.

Answer 2

Euros.

Step-by-step explanation:

Lantana Co. could reduce its exchange rate risk if its loan is denominated in euros because it is a major exporter to France and invoices the exports in euros.

The euros being a currency with higher exchange rates and poses less risks.