18
Long-Term Financing
A18 - 3
The Long-Term Financing Decision
A18 - 4
The Long-Term Financing Decision
A18 - 5
Managing Exchange Rate Risk
A18 - 7
Managing Exchange Rate Risk
A18 - 8
Floating-Rate Bonds
A18 - 9
Floating-Rate Bonds
A18 - 11
Use of Yield Curves
to Make Debt Maturity Decisions
• An MNC must decide on the maturity for
any potential debt. To do this, the MNC
may want to assess the yield curve in the
country of the currency to be borrowed.
• Since the slopes of the yield curves may
vary across countries, the choice of short-
term, medium-term, or long-term debt
financing may vary across countries too.
A18 - 12
Impact of Long-Term Financing Decisions
on an MNC’s Value
m
n ∑
[
E ( CFj , t ) × E (ER j , t ) ]
j =1
Value = ∑
t =1 (1 + k ) t
A18 - 14
Chapter Review
• Floating-Rate Bonds
¤ Hedging Interest Rate Risk
• Use of Yield Curves to Make Debt Maturity
Decisions
• Impact of Long-Term Financing Decisions
on an MNC’s Value
A18 - 15