EECS 1541 Lecture Notes - Lecture 32: Japanese Yen
23 Jun 2018
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EECS 1541 Lecture 32 Notes
Introduction
Eurobond Market
Some countries have a limited investor base, so MNCs in those countries naturally seek
financing elsewhere.
Second, MNCs may prefer to finance a specific foreign project in a particular currency
and thus may seek funds where that currency is widely used.
Third, an MNC might attempt to finance projects in a foreign currency with a lower
interest rate in order to reduce its cost of financing
Although doing so would increase its exposure to exchange rate risk (as explained in
later chapters).
Institutional investors such as commercial banks, mutual funds, insurance companies,
and pension funds from many countries are major investors in the international bond
market.
Institutional investors may prefer to invest in international bond markets, rather than in
their respective local markets, when they can earn a higher return on bonds
denominated in foreign currencies.
International bonds are often classified as either foreign bonds or Eurobonds.
A foreign bond is issued by a borrower foreign to the country where the bond is placed.
For example, a U.S. corporation may issue a bond denominated in Japanese yen that is
sold to investors in Japan.
In some cases, a firm may issue a variety of bonds in various countries.
The currency denominating each type of bond is determined by the country where it is
sold.
The foreign bonds in these cases are sometimes referred to as parallel bonds.
Eurobonds are bonds that are sold in countries other than the country whose currency
is used to denominate the bonds.
Eurobonds have become popular as a means of attracting funds.
Document Summary
Some countries have a limited investor base, so mncs in those countries naturally seek financing elsewhere. Second, mncs may prefer to finance a specific foreign project in a particular currency and thus may seek funds where that currency is widely used. The currency denominating each type of bond is determined by the country where it is sold. The foreign bonds in these cases are sometimes referred to as parallel bonds. Eurobonds are bonds that are sold in countries other than the country whose currency is used to denominate the bonds. Eurobonds have become popular as a means of attracting funds. One reason is that, because they circumvent registration requirements and avoid some disclosure requirements, these bonds can be issued quickly and at a low cost. Mncs may prefer to finance a specific foreign project in a particular currency and thus may seek funds where that currency is widely used.
