Exam 18: Long-Term Debt Financing

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.

In a(n) ____ swap, the fixed rate payer has the right to terminate the swap.

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

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 ____.

Lantana Co. pays for many imports denominated in Canadian dollars. It is a major exporter to France and invoices the exports in euros. It also has much business in U.S. dollars. It has no other international business and does not hedge its transactions. It is about to obtain a small loan. It could reduce its exchange rate risk if its loan is denominated in:​

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.

If an MNC uses a long-term forward contract to hedge the exchange rate risk associated with a bond denominated in euros, it would sell euros forward.

A(n) ____ swap is entered into today, but the swap payments start at a specific future point in time.

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

A U.S.-based MNC whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.

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

New Hampshire Corp. has decided to issue three-year bonds denominated in 5 million Russian rubles at par. The bonds have a coupon rate of 17 percent. If the ruble is expected to appreciate from its current level of $.03 to $.032, $.034, and $.035 in years 1, 2, and 3, respectively, what is the financing cost of these bonds?​

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

The yields offered on newly issued bonds tend to be:

Fixed-rate loans have interest rates that are fixed for one year but adjust at the end of each year in response to prevailing interest rates.

When a financial institution acts as a(n) ____ to an interest rate swap, it simply arranges a swap between two parties.

____ swaps are oFten used by companies to hedge against ____ rate risk.

Good Company prefers variable to fixed rate debt. Bad Company prefers fixed to variable rate debt. Assume that Good and Bad Companies could issue bonds as follows:​

If an MNC borrows funds in a foreign currency and that currency appreciates over time, the MNC will need fewer funds to cover the coupon or principal payments. [Assume the MNC has no other cash flows in that currency.]

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