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Now shift the focus to New Zealand market. Looking at solely the coupon is not enough, we have to look at what is going on with the currency. and this observation matches with our calculation analysis, proving that high with NZD, coupon rate is not enough, have to look at what is going on with the currency. Check your answer. Fit in?

Because the NZ$ is a fully free and floating currency, They are not attractive to corporates because they are unhedged.

--Therefore, the attractiveness of a NZ$ Eurobond offer depends on two things - the interest rate offered compared to lthe local interest rate, and the expectation of where the exchange rate will be when the bond matures.

Issuing debt in New Zealand is not necessary a nonstarter. Although it has a required coupon rate as high as 18.55%, the inflation rate has been floating freely and thus causing the CPI surprisingly high. There the purchasing power parity is proportional compare to thte on in the United States or in Swiss. When paying out coupon, the high inflation rate has offet the high coupon rate. The cost of debt of nNew Zealand in its own currency is 4.6% in 1987/1988 (govt issued Tbill). There fore, in their own currency, to raise $65 million USS dollars in New Zealand with a 2 year bond, the bond’s price should be 114.53. The first coupon payment is $21.2 NZD, and the second payment would be the sum of second coupon payment plus the principle, which is equal to 135.7 million in NZD. The cost of debt in Switzerland is 4.0%. In the Swiss currency, $65 UDS converted to Swiss franc is 99.45 million in CHF. The first coupon payment should be 4.5 million, and the second payment is roughly about 104 million in CHF. If the company were to raise USDD debt in the EURObond market, the first payment is 5.62 million in USD and the second payment is $70.62 million. However, if convert all the currencies back to USD, the results are different due to the interest rate difference and diffein different countries. In New Zealand, the first coupon payment is 10.7 million USD *by using CIP) which is different from 5.62 million USD idf the debt is issued in UDS: likewise, the second payment is to be 62 million USD which is less than the second payment if issseud in USD. Therefore, the NPV of the debt if it is to be issued in New Zealand, would be 2 which is greater than if the debt is issued in USD, in which case the NPV would simply equal to 0 (if use USD coupon rate as discount rate). In CHF, the first payment made in CHF converted to USD would be 3.1 million USD.. And the second payment woul be equal to 0.33 million USD. In Macroeconomiccs view, forward rate depends on people’s expectration about certain countries’ interest rate

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