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Texas Co. issued a 20-year fixed-rate bonds denominated in Japanese yen to take advantage of the...

Texas Co. issued a 20-year fixed-rate bonds denominated in Japanese yen to take advantage of the low interest rate in Japan, even though it has no cash flows in yen. The actual financing cost of those bonds to Texas Co. will increase if the:

a. yen appreciates against the dollar.
b. interest rate in Japan rises over time.
c. interest rate in Japan decreases over time.
d. yen depreciates against the dollar.
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Answer #1

The Coupon on Bond is to be paid in Yen. so if the Dollar depriciates or the Yen appreciates against Dollar then it will take more dollar to pay Coupon in Yen.

So, Option A is correct because if Yen appreciates then Taxes co will require more dollars to pay coupon in Yen, which will increase the finance Cost.

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