Ch. 12 IF

The vast majority of new international bond offerings

-make annual coupon payments. -have fixed coupon payments. -have a fixed maturity. Answer: All of the above

A "Eurobond" issue is

-one denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. -usually a bearer bond. -for example, a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands. Answer: All of the above

Assuming that the bond sells at par, the implicit $/€ exchange rate at maturity of a Euro—U.S. dollar dual currency bond that pays €651.25 at maturity per $1,000 of par value is

Answer: $1.54/€1.00. Explanation: Solve the following proportion for X: (€651.25 / $1,000) = (€1 / X) = $1.54.

When the bond sells at par, the implicit SF/$ exchange rate at maturity of a Swiss franc/U.S. dollar dual currency bond that pays $581.40 at maturity per SF1,000, is

Answer: SF1.72/$1.00. Explanation: Solve the following proportion for X: ($581.40 / SF1,000) = ($1 / X), where X = SF1.72.

A ten-year floating-rate note (FRN) has coupons referenced to 3-month pound LIBOR, and pays coupon interest quarterly. Assume that the current 3-month LIBOR is 4 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon payment on a £1,000 face value FRN will be

Answer: £41.25 Explanation: £41.25 = 0.25 × (0.04 + 0.00125) × £1,000

Because __________ do not have to meet national security regulations, name recognition of the issuer is an extremely important factor in being able to source funds in the international capital market.

Eurobonds

In any given year, rightly 80 percent of new international bonds are likely to be

Eurobonds.

S&P Global Ratings has, for years, provided credit ratings on international bonds.

Their ratings reflect the creditworthiness of the borrower and exchange rate uncertainty.

Eurobonds sold in the United States may not be sold to U.S. citizens.

True

Floating rate notes behave differently in response to interest rate risk than straight fixed-rate bonds.

True since FRNs experience only mild price changes between reset dates, over which time the next period's coupon payment is fixed (assuming, of course, that the reference rate corresponds to the market rate applicable to the issuer).

The four currencies in which the majority of domestic and international bonds are denominated are

U.S. dollar, the euro, the pound sterling, and the yen.

Floating-rate notes

are a form of adjustable rate bond.

Eurobonds are usually

bearer bonds.

Investors will generally accept a lower yield on ________ than on __________ of comparable terms, making them a less costly source of funds for the issuer to service.

bearer bonds; registered bonds

Bonds with equity warrants

can be viewed as straight debt with a call option (technically a warrant) attached.

"Yankee" bonds are

dollar-denominated foreign bonds originally sold to U.S. investors.

Proportionately more domestic bonds than international bonds are denominated in the ______ and the ______ while more international bonds than domestic bonds are denominated in the _________ and the ________.

dollar; yen; euro; pound sterling

Zero coupon bonds

have no interest income and give only capital gains income.

The secondary market for Eurobonds

is an over-the-counter market.

The coupon interest on Eurobonds

is paid annually.

A "foreign bond" issue is

one offered by a foreign borrower to investors in a national market and denominated in that nation's currency (e.g., a German MNC issuing dollar-denominated bonds to U.S. investors).

In contrast to many domestic bonds, which make _________ coupon payments, coupon interest on Eurobonds is typically paid _________.

semiannual; annually

Proportionately more domestic bonds than international bonds are dominated in

the dollar and the yen.