foreign bond

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.