Ch18LongTerm Financing(国际金融管理山东大学,秦风鸣)概要1.pptVIP

Long-Term Financing Chapter Objectives To explain why MNCs consider long-term financing in foreign currencies; To explain how the feasibility of long-term financing in foreign currencies can be assessed; and To explain how the assessment of long-term financing in foreign currencies can be adjusted for bonds with floating interest rates. The Long-Term Financing Decision Because bonds denominated in foreign currencies sometimes require lower yields, MNCs often consider long-term financing in foreign currencies. The actual cost of such financing depends on the quoted interest rate, as well as the changes in the value of the borrowed currency over the life of the loan. Annualized Bond Yields Across Countries Online Application Long-term interest rates for major currencies for various maturities can be found at /, while currency forecasts are available at /ifc/. The Long-Term Financing Decision To make the long-term financing decision, the MNC must determine the amount of funds needed, forecast the price (interest rate) at which the bond may be issued, and forecast the exchange rates of the borrowed currency for the times when it has to make payments (coupons and principal) to the bondholders. The Long-Term Financing Decision Then the probability distribution of the bond’s financing costs may be determined. An MNC that denominates bonds in a foreign currency may achieve major cost reductions, but is subject to the possibility of incurring high costs if the borrowed currency appreciates over time. Actual Costs of Financing Managing Exchange Rate Risk Point-estimate exchange rate forecasts cannot adequately account for the potential impact of exchange rate fluctuations. Instead, the probability distribution of the exchange rate should be developed, so as to determine the expected financing cost and its probability distribution. Computer simulation may aid the process. Managing Exchange Rate Risk The exchange rate risk from financing with bonds in foreign currencies can b