Exam 18: Long-Term Debt Financing

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

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

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

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

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:

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

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

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

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.

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

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?

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

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

Foreign subsidiaries of U.S. MNCs can finance projects with dollars in order to avoid exchange rate risk.

A limitation of interest rate swaps is that there is a risk to each swap participant that the counterparticipant could default on his payments.

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

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 is ____.

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.

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.