Tulane, Inc. (based in Louisiana), considers issuing 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 involved 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?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 18, Problem 2ST
Textbook Problem

Tulane, Inc. (based in Louisiana), considers issuing 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 involved 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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