Exam 18: Long-Term Debt Financing

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

Many MNCs simultaneously swap interest payments and currencies.

If the currency denominating a foreign bond depreciates against the firm's home currency over the lifetime of the bond, 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.

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

U.S.-based MNCs 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.

If the currency of a foreign currency-denominated bond ____, the funds needed to make coupon payments will ____.

New Hampshire Corp. has decided to issue three-year bonds denominated in 5,000,000 Russian rubles at par. The bonds have a coupon rate of 17%. 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?

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

Assume that a yield curve's shape is caused by liquidity. 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:

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

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

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.

Simulation is useful in the bond-denomination decision since it can:

____ are commonly used to hedge interest rate risk.

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

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

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:

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.

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