Pouf Is a Rapidly Growing and Pleasant Country in the Austral

Essay

Pouf is a rapidly growing and pleasant country in the Austral hemisphere. Its inhabitants are called Poufans, and its currency is the pof. The bond market is fairly active with many issues by Poufan companies, but there are no foreign investors or issuers. The current yield on pof bonds is 10%. Poufan investors have to pay a 15% tax on interest income received. The newly elected Poufan government wishes to internationalize its bond market and attract foreign issuers. To do so, it decides to remove any taxation of income on bonds issued by foreign corporations in Pouf. Several changes take place after the enactment of this tax provision:
$\bullet$ Several well-known foreign corporations issue pof-denominated bonds in the Poufan bond market.
$\bullet$ Several well-known Poufan corporations issue international bonds denominated in U.S. dollars.
$\bullet$ Several dollar/pof swaps are arranged.
Try to provide a sensible explanation for this phenomenon.