An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.

Question

Quizplus · Accepted Answer

If the MNC's foreign subsidiary makes the coupon and principal payments of the bond using its pound receivables, the MNC is completely insulated from exchange rate risk associated with the bond. This is because the subsidiary is bearing the exchange rate risk instead of the MNC.

An MNC Issuing Pound-Denominated Bonds May Be Completely Insulated from Exchange