Euro Bond:

In Euro bond, a foreign company issues a bond denominated in a currency

which is not the home currency of the investors.
For example, an US company issues bond and raises capital in Japan
denominated in US Dollar. This will be an example Euro Bond.
If the US company issues bond in Pound sterling in Japan, it will also be
considered as Euro Bond.
In the earlier case, it would be considered as a Euro Dollar Bond while in the
later case, it would be known as Euro Sterling Bond.

Multinational companies and national governments, including governments of developing countrie

s, use eurobonds to raise capital ininternational markets.

Eurobonds often trade on an exchange -- most often the London Stock Exchange or the
Luxembourg Stock Exchange -- and they trade much like other bonds. The eurobond market
is considered somewhat less liquid that the traditional bond market, but is still very liquid.

Eurobonds are usually "bearer bonds," meaning that there is no transfer agent that keeps a
list ofbondholders and arranges the interest and principal payments. Instead, holders receive
interest when they present the coupon to the borrower, and receive the principal when the
bond matures and the holder presents the physical bond certificate to the borrower.

Features: Bearer bonds -- anonymous investors ==> avoid taxes?

Interest tax free (in case of withholding tax, interest up)
underwritten by an internationally.
offered simultaneously to investors in a number of countries .
issued outside the jurisdiction of any single country.
they are not registered through a regulatory agency.
Make coupon payments annually.
Large in size offered for simultaneous placement in different countries

Objective: Eurobonds give issuers the opportunity to take advantage of favorable

regulatory and lending conditions in other countries. Eurobonds are not usually subject
to taxes or regulations of any one government, which can make it cheaper to borrow in the
eurobond market as compared to other debt markets.
Euro Bonds: Euro Bonds are issued in the offshore market and not governed by any
specific country rules and regulation. Most of the Eurobonds are issued in Western
European Countries, Middle East and Asian Countries. Most Eurobonds are issued in

either USD or Euro. Eurobonds many not be rated. Hence issuers of the Eurobond
must be reputed enough to attract investors.
Melnik and Nissim ( 2004) report states that In general, the credit quality of
Eurobonds is very high, as most Eurobonds are rated in the AAA to A range. Only
about 5% of the issues receive BBB ratings at the time of issue, and few issues are
ranked BB or below.

Foreign Bond:

Foreign Bond is a bond where foreign company issues bond denominated in

the currency denomination of the foreign country.
For example, an US company issues bond and raises capital in Japan
denominated in Japanese Yen.
In other words, the Japanese investors are not exposed to foreign exchange
risk while investing in a foreign bond.
At this junction it is important to understand that a Japanese company may
also issue bond and raise capital in Japan denominated in Japanese Yen.
But bonds issued by the Japanese company are termed as Domestic Bonds.
In case of a foreign bond, the bond issuer is from a foreign country. An Indian
company issuing USD bond in any country belonging to Middle East region is
an example of foreign bond.

Features:

Foreign bonds are underwritten by the underwriters of the

country where they are issued
It is issued by a foreign entity
Traded on a foreign financial market
Denominated in foreign currency
Maturity based on the need of investors of a particular country .
Foreign bonds are subjected to government regulations in the
country where they are issued.
Table 35.2: Names of Foreign Bonds.
Yankee Bonds Foreign Bonds sold in U.S.
Samurai Bonds Foreign Bonds sold in Japan.
Bulldog Bonds Foreign Bonds sold in U.K.
Rembrandt Bond Foreign Bonds sold in Netherland.
Matador Bond Foreign Bonds sold in Spain.

All foreign bonds have to be registered and have to abide by the rules and
regulation of the foreign country where these bonds are issued. For example Yankee

bonds (foreign bonds issued in U.S.) have to be registered with SEC of US and have
to follow the same accounting and disclosure requirement of domestic bonds.

Discuss why Eurobonds make up the lions share of the international bond
market.
Eurobonds make up over 80 percent of the international bond market. The two
major reasons for this stem from the fact that the U.S. dollar is the currency most
frequently sought in international bond financing. First, Eurodollar bonds can be
brought to market more quickly than Yankee bonds because they are not offered to
U.S. investors and thus do not have to meet the strict SEC registration
requirements. Second, Eurobonds are typically bearer bonds that provide anonymity
to the owner and thus allow a means for evading taxes on the interest received.
Because of this feature, investors are generally willing to accept a lower yield on
Eurodollar bonds in comparison to registered Yankee bonds of comparable terms,
where ownership is recorded. For borrowers the lower yield means a lower cost of
debt service.
FOREIGN BONDS
If an Indian company issue
bond in the New-York and
bond is dominated in US
dollar, such Bonds are called
foreign bonds.
Foreign bonds underwritten
by the underwriters of the
country where they issued.
Foreign bonds subjected to
governmental rules and
regulations

EURO BONDS
But in case of euro bonds
they are dominated in
currency other than the
currency of the country
where the bonds are issued.
Euro bonds underwritten by
the underwriters of multi
nationality
Euro bonds are free from
rules and regulations.

Foreign bonds is
determined keeping in mind
the investors of a particular
country .

Euro bond are tailored to

the needs of the
multinational investors.

Issuer Company Nationality

Category Domestic Domestic
Domestic Bond

Currency Denomination of the Bond

Domestic

Foreign
foreign Bond

Domestic

Foreign
Euro bond

Foreign

Domestic
Euro Bonds

Foreign

Bond

GLOBAL BONDS
Bonds that can be offered within the euro market and several other
markets simultaneously .
Unlike Euro bonds, global bonds can be issued in the same currency as
the country of issuance.
For example, a global bond could be both issued in the United States
and denominated in U.S.
dollars.
A bond that may be traded in any domestic or euro market. A global bond may be issued in the domest
ic currency, but the sameissue may be offered in several countries at the same time. Thus, global bonds
may be traded either in domestic or foreign markets.

A BOND that is issued simultaneously in a domestic market and the EUROMARKETS. Global
bonds, which may be fixed or floating rate and carry maturities ranging from 1 to 30 years, are
generally issued by large, wellknown CORPORATIONS or supranational that have international
operations and broad name recognition.

Deep Discount bonds

Most of the bonds make periodic coupon payments but there are a few bonds known as Deepdiscount bonds (also known as Zero Coupon Bonds) where the bonds are not contracted to make
periodic coupon payments.
Here the holder of the bonds earns income by buying the bond at a rate which is substantially lower
than its par value. I.e. he buys the bond at a DEEP-DISCOUNT. The bond holder earns this income
only on the maturity date when the company redeems these bonds either at the par value or at
premium.

Therefore the interest (income) earned here is the difference between the par value and the
discounted rate at which bondholder buys the security.
Example: If the bondholder purchases a deep-discount bond of par value Rs.1000 at Rs. 860, then
the interest earned during redemption is Rs. 140 (Rs. 1000 Rs. 860).