Currently

Currently, the British subsidiary of McDonald’s is assuming a fixed interest rate denominated in the pound. Through cross currency swapping the subsidiary of McDonald’s is able to break away from its fixed interest rate and can adopt the floating interest rate from its US parent company; they are participating in the swap of floating for fixed. In doing so they assume that with that there will be a drop in the floating interest rate reducing their fluctuating payments. This method also comes with a large risk. The British subsidiary also takes on the added risk that the interest rate may increase with the float. Using this swap McDonald’s will be paying out Pounds Sterling and slowly reducing their holdings of the foreign currency. With each payment they are reducing the risk associated with the Pound and their investment in a foreign country. The repatriation of royalties are being hedged to avoid future, more expensive payments.