Exam 18: Long-Term Financing

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

Because bonds denominated in foreign currencies rarely have lower yields,U.S.corporations rarely consider issuing bonds denominated in those currencies.

Ideally,a firm desires to denominate bonds in a currency that:

In a(n)_________ swap,the notional value is increased over time.

MNCs can use __________ to reduce exchange rate risk.This occurs when two parties provide simultaneous loans with an agreement to repay at a specified point in the future.

As a ________ to an interest rate swap,a financial institution simply arranges a swap between two parties.

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

Currency swaps,whereby two parties exchange currencies at a specified point in time for a specified price,are often used by MNCs to hedge against interest rate risk.

A U.S.firm has received a large amount of cash inflows periodically in Swiss francs as a result of exporting goods to Switzerland.  It has no other business outside the U.S.  It could best reduce its exposure to exchange rate risk by:

In general,the _________ rate payer in a plain vanilla swap believes interest rates are going to _______.

The yields offered on newly issued bonds denominated in dollars have:

A U.S.firm could issue bonds denominated in euros and partially hedge against exchange rate risk by:

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 the currency denominating a foreign bond depreciates against the firm's home currency,the funds needed to make coupon payments will increase.

Since yield curves are identical across countries,MNCs rarely consider them when deciding on the maturity of bonds denominated in a foreign currency.

An MNC issues ten-year bonds denominated in 500,000 Philippines pesos (PHP)at par.The bonds have a coupon rate of 15%.If the peso remains stable at its current level of $.025 over the lifetime of the bonds and if the MNC holds the bonds until maturity,the financing cost to the MNC will be:

Many MNCs simultaneously swap interest payments and currencies.

A ___________ gives its owner the right to enter into a swap.

Assume a U.S.-based subsidiary wants to raise $1,000,000 by issuing a bond denominated in Pakistani rupees (PKR).The current exchange rate of the rupee is $.02.Thus,the MNC needs ___________ rupees to obtain the $1,000,000 needed.

Most MNCs obtain equity funding: