[Toddsterpatriot]

Right. He's willing to accept a low coupon because he's paying a discounted rate on a new bond.

It's only a discount if the dollar goes back up. Otherwise he's paying 6500 Euros for a $10,000 bond that pays a 4% coupon. When he converts back to Euros (at today's rate) he'll still get 6500 Euros and his 4% interest.

because he paid $10,000 for the old one but only $6,500 for the new one.

Averaging down doesn't change the coupon. 4% for the old one, 4% for the new one.

[Alberta's Child]

Right. Now think like an investor who would hold this bond for 20+ years, and perhaps even leave his 4% coupon in U.S. dollars for the time being. In 20+ years a lot can happen . . . and he can sell that bond at any time before it matures.

In the meantime, he's getting a 35% "discount" on his European taxes, too -- since the 4% he's earning is being reported on his tax return in Euros, not dollars (even if he never exchanges these dollars into Euros this year).

It gets really complex, but when you do business across borders these are the things that come into play when you make decisions.