International Financial Management Study Set 9

Business

Quiz 15 :

Long-Term Financing

Quiz 15 :

Long-Term Financing

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

C

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A euro-based firm has received 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 euro area. It could best reduce its exposure to exchange rate risk by:
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Answer:

A

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When an MNC finances in a currency that matches its cash inflows using a relatively ____ maturity, the MNC is exposed to ____ risk.
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Answer:

B

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A floating coupon rate can be an advantage to the bond issuer during periods of increasing interest rates.
True False
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Countries where bond yields are ____ tend to have a ____ risk-free interest rate.
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UK-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.
True False
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Many MNCs simultaneously swap interest payments and currencies.
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Since yield curves are identical across countries, MNCs rarely consider them when deciding on the maturity of bonds denominated in a foreign currency.
True False
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Some firms may be uncomfortable issuing bonds denominated in foreign currencies because exchange rates are ____ difficult to predict over ____ time horizons.
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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.
True False
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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.]
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When deciding whether to take out a short- or long-term loan, there is always a clear answer to this question.
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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 £0.014 over the lifetime of the bonds and if the MNC holds the bonds until maturity, the financing cost to the MNC will be:
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Firm X conducts all business transactions in pounds. If it issues a currency cocktail bond, it can:
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An interest rate swap is commonly used by an issuer of fixed-rate bonds to:
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In a(n) ____ swap, the notional value is increased over time.
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An interest rate swap between two firms of different countries enables the exchange of ____ for ____.
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Because bonds denominated in foreign currencies rarely have lower yields, U.S. corporations rarely consider issuing bonds denominated in those currencies.
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Assume a UK-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 £0.01. Thus, the MNC needs ____ rupees to obtain the $1,000,000 needed.
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A US firm has a Canadian subsidiary that remits some of its earnings to the parent on an annual basis. The firm has no other foreign business. The firm could best reduce its exposure to exchange rate risk by issuing bonds denominated in:
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