Eurobond
Eurobond is a bond issued in a denomination which is different than the currency of the country in which it is actually issued. Mostly, these bonds are issued internationally by syndicates and are then classified on the basis of their currency denomination.
An example of Eurobond can be, for instance, a bond which is denominated in Great Britain Pounds, which is issued in the United States but by a Canadian company. In this scenario, the Canadian company is at liberty to issue these bonds from any other country (Eiteman, Stonehill, & Moffett, 2010; Baker & Martin, 2011; Arnold & Kumar, 2008).
Foreign Bond
Foreign bond is a bond issued by a business entity in the financial market of a country which is other than its parent country. For such foreign bonds, the denomination is in the local currency of the country where these bonds are issued and they are regulated by local regulations.
The major reason for issuing foreign which bonds is to obtain finance from a foreign financial market. Those foreign business enterprises which have a significant portion of their operations in foreign countries usually issue foreign bonds regularly in such foreign countries (Eiteman, Stonehill, & Moffett, 2010; Baker & Martin, 2011; Arnold & Kumar, 2008).
Choosing between Eurobonds and Foreign Bonds
Eurobonds constitute more than 80 % of the overall bond market in the world. The primary reason behind this fact is that a majority of bonds in the global bond market are denominated by United States dollar and US dollar is the most prevalent currency all over the world. Same is the case with Eurobonds as a majority of them are denominated in the US dollar.
Eurobonds, in comparison with foreign bonds, can be introduced in the financial market more swiftly as they do not require compliance with the regulations and other requirements of Securities and Exchange Commission. Moreover, Eurobonds can be transacted by a bearer, thereby resulting in an opportunity to avoid taxation on the income earned by the bearer.
It is due to this reason that investors are always ready for lower returns on these bonds in comparison to earning high amounts on other bonds, which require registration and compliance with other regulations. Having considered these advantages associated with Eurobonds, it is desirable that Eurobonds are used when seeking debt financing in international markets (Eiteman, Stonehill, & Moffett, 2010; Arnold & Kumar, 2008; Baker & Martin, 2011).
The post made by MNO regarding different types of bonds is comprehrensive in a way that it provides examples of Eurobond, Foreign Bond and Yankee Bond. I agree to the information provided in this post. In response, it would be interesting to note that all foreign bonds are regulated by the respective country’s regulations therefore for companies to raise finance in the international market is not an easy option.
They must have a strong legal and finance team to ensure that they fulfill the requirements of those requirements. However, it has been noted that companies which have high levels of exchange income tend to raise funds by issuing foreign bonds.
Foreign bond markets are becoming extensively internationalized and high compeition in international bond markets have put great pressure on domestic markets and their participants. One of the factors that play an important role in attracting bond issuers is the cost associated with the issuance of bonds. In Europe, this cost has declined much faster as compared to the US making European markets attractive (Black & Munro, 2010).
Also, an interesting point has been raised about risks involved in raising funds via foreign bonds by XYZ. Some of these risks are related to the issuance of bonds by inexperienced non-financial companies, exposure to exchange rate deviations, and covered interest parity (CIP) (Black & Munro, 2010).
Reference
Arnold, G., & Kumar, M. (2008). Corporate Financial Management. New Delhi: Pearson Education India.
Baker, H. K., & Martin, G. S. (2011). Capital Structure and Corporate Financing Decisions. New York: Kolb Series in Finance.
Eiteman, D., Stonehill, A., & Moffett, M. (2010). Multinational Business Finance. Upper Saddle River: Prentice Hall.
Black, S., & Munro, A. (2010). Why issue bonds offshore?. Web.