Explain how a foreign currency coupon bond issue is, in terms of its cash flow implication for a domestic issuer, equivalent to a domestic currency coupon bond issue plus a series of forward exchange contracts.

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Words: 180
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The Task is to solve the 2 questions below:

1. Explain how a foreign currency coupon bond issue is, in terms of its cash flow implication for a domestic issuer, equivalent to a domestic currency coupon bond issue plus a series of forward exchange contracts. How then could a foreign currency coupon bond issue be completely hedged against foreign exchange risk?

2. Suppose Apple needs $10 million for two weeks. Apple decides to borrow $10 million for 14 days. The Bank of Finland offers 6.55% for a 14-day domestic loan. BNL has an ask rate of 6.40% for a 14-day Euro-EUR loan. Apple decides to borrow from BNL. Describe the cash flows of this transaction.

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