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Chapter 9
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Interest Rate Risk
•
All firms – domestic or multinational,
small or large, leveraged, or unleveraged
– are sensitive to interest rate movements
in one way or another.
•
The single largest interest rate risk of the
nonfinancial firm (our focus in this
discussion) is debt service; the
Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 1-3
Management of Interest Rate
Risk
• The second most prevalent source of interest rate
risk for the MNE lies in its holdings of interest-sensitive securities.
• Unlike debt, which is recorded on the right-hand
side of the firm’s balance sheet, the marketable securities portfolio of the firm appears on the left-hand side.
• Marketable securities represent potential earnings
