1- In deciding on the maturity of foreign debt to be issued, a U.S.-based MNC co

Question

1-

In deciding on the maturity of foreign debt to be issued, a U.S.-based MNC considering the issuance of foreign debt and observing a flat yield curve in the foreign country would probably prefer to issue ________ debt.

d. None of these choices are correct.

2-

In deciding on the maturity of foreign debt to be issued, a U.S.-based MNC considering the issuance of foreign debt and observing an upward sloping yield curve in the foreign country would probably prefer to issue ________ debt.

a. Long-term b. Short-term c. Medium-term

d. None of these choices are correct.

2-

In deciding on the maturity of foreign debt to be issued, a U.S.-based MNC considering the issuance of foreign debt and observing an upward sloping yield curve in the foreign country would probably prefer to issue ________ debt.

a. Long-term b. Short-term c. Medium-term d. None of these choices are correct.

Explanation / Answer

(1) A flat yield curve expectation implies that interest rates are expected to remain constant in the future over the long-term investment horizon. Hence, the firm would not face interest rate (fluctuation) risk, thereby allowing them to raise long-term debt. Hence, the correct option is (a).

NOTE: Please raise a separate query for the solution to the remaining unrelated question.

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