Exam 18: Long-Term Debt Financing

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

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

An upward-sloping yield curve for a foreign country means that annualized yields there are ____ for short-term debt than for long-term debt. The yield curve in this country reflects ____.

The actual financing cost of a U.S. corporation issuing a bond denominated in euros is affected by the euro's value relative to the U.S. dollar during the financing period.

Even if the interest rate associated with a foreign country is higher than the domestic interest rate, the financing costs of a foreign bond will always be lower than the financing rate of a domestic bond as long as the currency depreciates over the lifetime of a bond.

The yields offered on newly issued bonds tend to be:

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.

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.

As a(n) ____ to an interest rate swap, a financial institution simply arranges a swap between two parties.

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

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

Lantana Co. conducts 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:

Generally, the financing costs associated with a foreign currency-denominated bond will be ____ volatile than the financing costs of a domestic bond because of ____.

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

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.

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

When an MNC needs to finance a portion of a foreign project within the foreign country, the best method to account for a foreign project's risk is to:

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

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.

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