Abstract: Exchange Rate Risk, Foreign-Pay Bond Issues and the Financial Behavior of Canadian Corporations

Extract

Some basic ideas of a model of the international term structure of interest rates are outlined. Based on Roll's (1970) theory of equilibrium interest rates in an efficient bond market of a closed economy, we show that the term structure of interest rates in countries whose residents engage in international financial transactions is a function of domestic and foreign traders' expectations of future domestic and foreign spot interest rates, or their degree of risk aversion, and of differences in time preferences.