Question Details

Which type of bond should Sambuka issue 


1. Exchange Rate Effects. Katina, Inc., is a U.S. firm that plans to finance with bonds denominated
in euros to obtain a lower interest rate than is available on dollar-denominated bonds. What is the most critical point in time when the exchange rate will have the greatest impact?
2. Bond Financing Analysis. Sambuka, Inc. can issue bonds in either U.S. dollars or in Swiss
francs. Dollar-denominated bonds would have a coupon rate of 15 percent; Swiss francdenominated bonds would have a coupon rate of 12 percent. Assuming that Sambuka can issue
bonds worth $10,000,000 in either currency, that the current exchange rate of the Swiss franc is
$.70, and that the forecasted exchange rate of the franc in each of the next three years is $.75, what is the annual cost of financing for the franc-denominated bonds? Which type of bond should Sambuka issue?



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