Exam 18: Long-Term Debt Financing

A floating coupon rate is an advantage to the bond issuer during periods of increasing interest rates.

A limitation of interest rate swaps is that there is a risk to each swap participant that the counterparty could default on its payments.

A(n) _____ yield curve for a country means that annualized yields are ____ for short-term debt than for long-term debt.

​A currency swap between two firms of different countries enables the exchange of ____ for ____ at periodic intervals.

​If U.S. firms issue bonds in ____, the dollar outflows to cover fixed coupon payments increase as the dollar ____.

If an MNC issues bonds denominated in a foreign currency and that currency depreciates against the MNC's home currency, the funds needed to make coupon payments will increase.

____ are commonly used to hedge interest rate risk.

In a(n) ____ swap, two parties agree to exchange payments associated with bonds; in a(n) ____ swap, two parties agree to periodically exchange foreign currencies.​

​A U.S. firm has a Canadian subsidiary that remits a large amount of its earnings to the parent on an annual basis. It also imports supplies from China, invoiced in Chinese yuan. The firm has no other foreign business and needs a small loan. The firm could best reduce its exposure to exchange rate risk by borrowing:

Some MNCs use a country's yield curve to compare annualized rates among debt maturities, so that they can choose a maturity that has a relatively low rate.

If an MNC finances with a currency different from its invoice currency, it would prefer that the loan be denominated in a currency that:​

Countries in emerging markets such as in Latin America tend to have ____ interest rates, and so the yields offered on bonds issued in those countries are ____.

Floating rate bonds are often issued with a floating coupon rate that is tied to LIBOR.

​The ____ for a given country represents the annualized yield offered on debt for various maturities.

When an MNC finances with a floating rate loan in a currency that matches its long-term cash inflows, the MNC is exposed to ____ risk.

Foreign subsidiaries of U.S. MNCs can avoid exchange rate risk by financing projects with dollars.

Simulation is useful in the debt denomination decision since it can:

An interest rate swap between two firms of different countries enables the exchange of ____ for ____.

An interest rate swap is commonly used by an issuer of fixed rate bonds to:

In a(n) ____ swap, the notional value is reduced over time.