1) What is going on at Carrefour SA?
Carrefour S.A. is a retail corporation located in France. Carrefour is Europe’s largest retailer, with 5,200 stores. Over the last four years they have been growing with several large acquisitions, mostly outside of France, which is requiring them to take on debt. In the past, Carrefour management had generally financed company growth through securities denominated in the currency of business operations. But have recently been suggested to consider borrowing in British pounds sterling in order to take advantage of a borrowing opportunity in that currency. Carrefour is exposed to exchange rate risk because of foreign-currency exposure from imported goods. This risk was being hedged through forward contracts. The €13.5 billion of debt on the Carrefour books is 97% hedged in Euro currency, €6.4 billion of that being publicly traded bonds. Carrefour has a large exposure risk to the Euro because of their hedging policy.
2) Why does the Eurobond market exist?
A Eurobond is an international bond that is denominated in a currency not of the currency to the country where it is issued. Like many bonds, Eurobonds are usually fixed-rate, interest-bearing notes, although many are also offered with floating rates and other variations. Most pay an annual coupon and have maturities of 3-7 years. Eurobond issues are made to cater to the issuers' and investors' needs, and can vary in terms and form substantially. The Eurobond market exists for large corporations such as Carrefour to make transactions involving cheaper access to capital in a particular currency or funds at a lower interest rate that two or more parties capitalize on by exchange payments on parallel or opposing debt issues to take advantage of arbitrage conditions or complementary financial advantages.
3) What can a firm do to manage the exchange rate risk of foreign currency