EECS 1541 Lecture 35: EECS 1541 Lecture 35 Notes
24 Jun 2018
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EECS 1541 Lecture 35 Notes
Introduction
Risk of International Bonds
These intermediaries can act not only as brokers but also as dealers that hold
inventories of Eurobonds.
Impact of the Euro on the Eurobond Market
Before the euro’s adoption throughout much of Europe, MNCs in European countries
usually preferred to issue bonds denominated in their local currency.
However, the market for bonds in each particular currency was relatively limited.
With widespread adoption of the euro, MNCs from many different countries can issue
bonds denominated in that currency
Hence there is now a much larger and more liquid market.
Multinational corporations have benefitted because they can more easily obtain debt by
issuing bonds, since investors know there will be adequate liquidity in the secondary
market
Development of Other Bond Markets
Bond markets have developed in Asia and South America.
Government agencies and MNCs in these regions use international bond markets to
issue bonds when they believe they can reduce their financing costs.
Investors in some countries use international bond markets because they expect their
local currency to weaken in the future and prefer to invest in bonds denominated in a
strong foreign currency.
The South American bond market has experienced limited growth because the interest
rates in some countries there are usually high.
MNCs and government agencies in those countries are unwilling to issue bonds when
interest rates are so high, so they rely heavily on short-term financing.
Document Summary
Impact of the euro on the eurobond market. Before the euro"s adoption throughout much of europe, mncs in european countries usually preferred to issue bonds denominated in their local currency. Multinational corporations have benefitted because they can more easily obtain debt by issuing bonds, since investors know there will be adequate liquidity in the secondary market. Bond markets have developed in asia and south america. Mncs and government agencies in those countries are unwilling to issue bonds when interest rates are so high, so they rely heavily on short-term financing. The euro"s adoption throughout much of europe, mncs in european countries usually preferred to issue bonds denominated in their local currency. However, the market for bonds in each particular currency was relatively limited. With widespread adoption of the euro, mncs from many different countries can issue bonds denominated in that currency. Hence there is now a much larger and more liquid market. Markets have developed in asia and south america.
