foreign bond

(noun)

an international debt instrument denominated in the home currecy but issued by a foreign company

Related Terms

  • foreign currency exposures
  • exchange rate

Examples of foreign bond in the following topics:

  • Other Types of Bonds

    • Other bonds include register vs. bearer bonds, convertible bonds, exchangeable bonds, asset-backed securities, and foreign currency bonds.
    • Convertible bonds are bonds that let a bondholder exchange a bond for a number of shares of the issuer's common stock.
    • Some companies, banks, governments, and other sovereign entities may decide to issue bonds in foreign currencies because it may appear to be more stable and predictable than their domestic currency.
    • Issuing bonds denominated in foreign currencies also gives issuers the ability to access investment capital available in foreign markets.
    • Bulldog bond - a pound-sterling-denominated bond issued in England by a foreign institution or government.
  • Government Bonds

    • A government bond is a bond issued by a national government denominated in the country's domestic currency.
    • Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
    • Investors in sovereign bonds denominated in foreign currency have the additional risk that the issuer may be unable to obtain foreign currency to redeem the bonds.
    • At the secondary market, each bond will be assigned with very own bond code (ISIN code).
    • However, other risks still exist, such as currency risk for foreign investors (for example non-U.S. investors of U.S.
  • The Public Debt

    • Sovereign debt usually refers to government debt that has been issued in a foreign currency.
    • A government bond is a bond issued by a national government.
    • Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
    • Investors in sovereign bonds denominated in foreign currency have the additional risk that the issuer may be unable to obtain foreign currency to redeem the bonds.
    • An advantage of issuing bonds in a currency such as the US dollar, the pound sterling, or the euro is that many investors wish to invest in such bonds.
  • Long-Run Implications of Fiscal Policy

    • When the government runs a budget deficit, funds will need to come from public borrowing (the issue of government bonds), overseas borrowing, or monetizing the debt.
    • When government borrowing increases interest rates it attracts foreign capital from foreign investors.
    • This is because, all other things being equal, the bonds issued from a country executing expansionary fiscal policy now offer a higher rate of return.
    • To purchase bonds originating from a certain country, foreign investors must obtain that country's currency.
    • Once the currency appreciates, goods originating from that country now cost more to foreigners than they did before and foreign goods now cost less than they did before.
  • Overview of Convertible Securities

    • Convertible bonds are usually issued offering a higher yield than obtainable on the shares into which the bonds convert.
    • Convertible bonds have all the features of typical bonds, plus the following additional features:
    • Call features: The ability of the issuer (on some bonds) to call a bond early for redemption.
    • Convertible bonds are safer for the investor than preferred or common shares; they provide asset protection, because the value of the convertible bond will only fall to the value of the bond floor.
    • This diagram illustrates an arbitrage opportunity in foreign currency exchange.
  • Bond Rating System

    • The credit rating is a financial indicator assigned by credit rating agencies; bond ratings below BBB-/Baa are considered junk bonds.
    • Bond ratings below BBB-/Baa are considered to be not investment grade and are colloquially called "junk bonds. "
    • Under the Credit Rating Agency Reform Act, an NRSRO may be registered with respect to up to five classes of credit ratings: (1) financial institutions, brokers, or dealers; (2) insurance companies; (3) corporate issuers; (4) issuers of asset-backed securities; and (5) issuers of government securities, municipal securities, or securities issued by a foreign government.
    • Bonds that are not rated as investment-grade bonds are known as high-yield bonds or more derisively as junk bonds.
    • Bond ratings below BBB-/Baa are considered to be not investment grade and are colloquially called "junk bonds
  • Redeeming at Maturity

    • The journal entry to record the retirement of a bond: Debit Bonds Payable & Credit Cash.
    • A maturity date is the date when the bond issuer must pay off the bond.
    • Some structured bonds can have a redemption amount that is different from the face amount and can be linked to performance of particular assets such as a stock or commodity index, foreign exchange rate or a fund.
    • Bonds can be classified to coupon bonds and zero coupon bonds.
    • For coupon bonds, the bond issuer is supposed to pay both the par value of the bond and the last coupon payment at maturity.
  • Answers to Chapter 8 Questions

    • Demand for bonds decreases and shifts leftward.
    • Thus, both the bond price and quantity rise.
    • Quantity is determinate while bond prices, and thus bond interest rates are indeterminate.
    • Businesses and government supply more bonds because they can repay the bonds with cheaper dollars.
    • Thus, businesses and the government would borrow the cheaper funds from foreign investors.
  • Direct Investment

    • FDI is practiced by companies in order to benefit from cheaper labor costs, tax exemptions, and other privileges in that foreign country.
    • Intel is headquartered in the United States, but it has made foreign direct investments in a number of Southeast Asian countries where they produce components of their products in Intel-owned factories.
    • FDI is in contrast to portfolio investment which is a passive investment in the securities of another country, such as stocks and bonds.
    • However, identifying the conditions that best attract such investment flow is difficult, since foreign investment varies greatly across countries and over time.
    • Explain the effects of foreign direct investment (FDI) for the investor and the host country
  • The Financial Account

    • This occurs when domestic buyers are purchasing more foreign assets than foreign buyers are purchasing of domestic assets.
    • Portfolio investment refers to the purchase of shares and bonds.
    • Purchases of foreign currencies, for example, will increase the deficit and vis versa.
    • A higher central bank interest rate will tend to increase the interest rate on all domestic financial assets, such as bonds, loans, and government securities.
    • Austria has experienced a surplus of foreign direct investment: more foreign investors invest in Austria than Austrian investors do in the rest of the world.
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