A respected economist recently predicted that, even though Japanese inflation would not rise, Japanese interest rates would rise consistently over the next five years. Paxson Co., a U.S. firm with no foreign operations, has recently issued a Japanese yen-denominated bond to finance U.S. operations. It chose the yen denomination because the coupon rate was low. Its vice president stated, "I'm not concerned about the prediction because we issued fixed-rate bonds and are therefore insulated from risk." Do you agree? Explain.

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 4ST
Textbook Problem

A respected economist recently predicted that, even though Japanese inflation would not rise, Japanese interest rates would rise consistently over the next five years. Paxson Co., a U.S. firm with no foreign operations, has recently issued a Japanese yen-denominated bond to finance U.S. operations. It chose the yen denomination because the coupon rate was low. Its vice president stated, "I'm not concerned about the prediction because we issued fixed-rate bonds and are therefore insulated from risk." Do you agree? Explain.

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