1 explain why a 64257 rm may issue a bond denominated in a currency different from i 1319221

1.   Explain why a firm may issue a bond denominated in a currency different from its home currency to finance local operations. Explain the risk involved.

2.   Tulane, Inc. (based in Louisiana), is considering is- suing a 20-year Swiss franc–denominated bond. The proceeds are to be converted to British pounds to support the firm’s British operations. Tulane, Inc., has no Swiss operations but prefers to issue the bond in francs rather than pounds because the coupon rate is 2 percentage points lower. Explain the risk in- volved in this strategy. Do you think the risk here is greater or less than it would be if the bond proceeds were used to finance U.S. operations? Why?

 

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