ABSTRACT
The key decision in international financial management is the debt denomination decision. When borrowing, managers of firms must decide whether to sell new debt and bank loans denominated in their domestic currency or in a foreign currency. Domestic currency, for all practical purposes, is the currency in which the firm reports its income to its stockholders, or to its owners. For most purposes the relevant foreign currency is either the currency of one of the foreign countries in which the firm sells or produces, or the currency of one of the small number of countries in which the firm can borrow readily. The choice of currency for the denomination of debt and bank loans affects both the level and the variability of the firm's income because it impacts on net interest payments and foreign exchange gains and losses.
