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Discuss about deep-discount bonds

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Question: A Canadian firm has to raise $ 1 0,000,000 and has decided to do so by selling zero coupon (or deep-discount bonds) with a maturity of 12 years. Effective yields on such debt currently are 11 percent in Canada and 9 percent in the United States, and the current exchange rate is C$ 1.00 = US$0. 72. By how much would the exchange rate over the next 12 years have to shift to effectively eliminate any interest-rate advantage that currently exists on borrowing in the United States?

Reference no: EM131749993

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