Even if a foreign interest rate is higher than an MNC's domestic interest rate, the financing costs of issuing a bond denominated in the foreign currency will always be lower than the financing cost of a domestic bond as long as the currency depreciates over the lifetime of the bond.

Question

Quizplus · Accepted Answer

The statement is false. Even if the foreign interest rate is higher, the financing costs of issuing a bond denominated in the foreign currency could still be higher due to the higher risk associated with foreign exchange fluctuations. Even if the currency depreciates over the lifetime of the bond, it may not be enough to offset the increased financing costs.

Even If a Foreign Interest Rate Is Higher Than an MNC's