Foreign Currency Coupon Bond Issue Discussion Questions

Description

Your Task: Please find the three questions below:

1. Explain how a foreign currency coupon bond issue is, in terms of its cash flow implication for a domestic issuer, equivalent to a domestic currency coupon bond issue plus a series of forward exchange contracts. How then could a foreign currency coupon bond issue be completely hedged against foreign exchange risk?

2. Suppose Apple needs $10 million for two weeks. Apple decides to borrow $10 million for 14 days. The Bank of Finland offers 6.55% for a 14-day domestic loan. BNL has an ask rate of 6.40% for a 14-day Euro-EUR loan. Apple decides to borrow from BNL. Describe the cash flows of this transaction.

3. Like any other derivative, swaps are contracts that allows management of risk. Explain how swaps can be used to manage risk or to conceal it?

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