Why do all currency bonds "expose the issuers and the holders to some form of foreign exchange risk" regardless of the category of bond?
What will be an ideal response?
Foreign exchange risk refers to the risk associated with receiving cash flows in another country's currency. From the perspective of the holder of a currency bond (the investor), the cash flows denominated in a foreign currency expose the investor to uncertainty as to the cash flow to be received in their country's currency. This is because the cash flow they actually receive depends on the exchange rate between their country's currency and the foreign currency received. If the foreign currency depreciates (declines in value) relative to their country's currency, then they will receive proportionately less. From the issuer's view, they are at risk since expected depreciation may make their bonds less marketable driving down the price.
Dual-currency issues are issues that pay coupon interest in one currency but pay the principal in a different currency. This can expose both the issuer and the holders to foreign exchange risk if both the cash flows paid (by the issuer) and the cash flows received (by the holder) are not known in advance. The exact exposure can depend on the type of dual-currency bond. For a first type of dual-currency bond, the exchange rate that is used to convert the principal and coupon payments into a specific currency is specified at the time the bond is issued. A second type differs from the first in that the applicable exchange rate is the rate that prevails at the time
a cash flow is made (i.e., at the spot exchange rate at the time a payment is made). A third type is one that offers to either the investor or the issuer the choice of currency. These bonds are commonly referred to as option currency bonds.
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a. The direct method b. The indirect method c. Both the direct and indirect methods d. Neither the direct method nor the indirect method
Lassen Corporation issued ten-year term bonds on January 1, 20x5, with a face value of $800,000. The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31. The bonds were issued for $690,960 to yield an effective annual rate of 8 percent. The effective interest method of amortization is to be used. The entry to be recorded on December 31, 20x5, for the
payment of interest (rounded to the nearest dollar) and the amortization of discount is: A) Bond Interest Expense 3,638 Unamortized BondDiscount 3,638 B) Bond Interest Expense 27,784 Unamortized BondDiscount 3,784Cash 24,000 C) Bond Interest Expense 27,784 Cash 27,784 D) Bond Interest Expense 24,000 Unamortized BondDiscount 24,000
To record the adjustment from a ________, the liability account is debited and the revenue account is credited at the end of the period
a. deferred revenue b. accrued expense c. deferred expense d. accrued revenue
Assuming there is sufficient customer demand either way, how does a company decide whether to sell a product or to process it further? When should it be processed further?