Abstract
* This paper examines, from the financial manager's viewpoint, the risk and cost of bonds denominated in the Special Drawing Right (SDR), which consists of specified amounts of 16 major currencies. Floating exchange rates have forced investors and financial managers to be continually concerned with changes in exchange rates, rather than obtaining forward cover only when an official devaluation appeared imminent. The most difficult problems engendered by floating rates concern long-term investments; forward cover is unavailable for periods longer than 12 to 18 months, and long-term forecasts of exchange rates are subject to a wide range of error. In addition, Heckerman [5] has shown that hedging of a firm's balancesheet exposure is insufficient to protect against subsequent currency depreciation. One response to this problem has been long-term financing by means of the SDR.
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