Exam 18: Long-Term Debt Financing

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

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:

An MNC may be tempted to finance with a maturity that is less than the expected life of the project when the yield curve is:

The global trade association that is credited with helping to standardize the swaps market is called the International Monetary Fund.

A callable swap gives the ____ payer the right to terminate the swap; the MNC would exercise this right if interest rates ____ substantially.

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

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

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 could issue bonds denominated in euros and partially hedge against exchange rate risk by:

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

A U.S. firm receives 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 United States. It could best reduce its exposure to exchange rate risk by:

A parallel loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.

An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.