IBM (US) needs to raise $100 or an equivalent in foreign currency to fund its operations in New York. It can issue a 3-year maturity Japanese yen bond at par, coupon rate 1% per annum. The current exchange rate is 85/$. Alternatively, it can issue the 3-year Eurodollar bond at par, with 3% coupon per year.

You forecast the future exchange rates as follows: Year 1 - 92 Year 2 - 98 Year 3 - 107

The Bank has quoted the following forward rates for the yen/$ exchange rate: Year 1 - 82 Year 2 - 80 Year 3 - 77

Assume that the market interest rates are 1% (Japan) and 3% (US) flat for the next three years. Which bond is cheaper for IBN to issue? Covered Bond or Uncovered Bond? Why? Show All Calculations.