International Bond

Definition

An International Bond is a type of debt security that is issued in a country different from where investors reside. These bonds are typically issued by multinational corporations and governments seeking to attract foreign capital. They’re typically denominated in the currency of the country where it’s issued, but can also be issued in any other currency, depending on the agreement between all parties.

Phonetic

The phonetic pronunciation of “International Bond” is: /ˌɪntərˈnæʃənəl bɒnd/

Key Takeaways

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1. International Bonds are debt securities issued in a country by a non-domestic entity, offering investors a method to diversify their portfolios outside of domestic investments.
2. They come with certain risks such as country risk, exchange rate risk and liquidity risk, but they also give potential benefits such as opportunities for higher yield and enhanced portfolio diversification.
3. The three types of international bonds are foreign bonds, eurobonds, and global bonds. Each type has its own characteristics and the choice between them depends on the objectives and risk tolerance of the investor.

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1. International Bonds are debt securities issued in a country by a non-domestic entity, offering investors a method to diversify their portfolios outside of domestic investments.
2. They come with certain risks such as country risk, exchange rate risk and liquidity risk, but they also give potential benefits such as opportunities for higher yield and enhanced portfolio diversification.
3. The three types of international bonds are foreign bonds, eurobonds, and global bonds. Each type has its own characteristics and the choice between them depends on the objectives and risk tolerance of the investor.

Importance

International bonds are important in the business and finance world as they provide a means for corporations and governments to raise money in foreign markets. By issuing these bonds, organizations not only diversify their sources of funding, but also mitigate the risk of fluctuations in local capital markets impacting their ability to raise capital. Investors, too, benefit from international bonds as they provide an opportunity to diversify their portfolios across multiple countries and currencies, thus reducing risk through geographic diversification. They also give investors the potential to earn higher returns from growth opportunities in foreign markets. Therefore, international bonds play a significant role in promoting global financial integration, enabling capital to flow more freely across borders.

Explanation

International bonds are crucial instruments in global finance as they serve essential functions for both issuers and investors. They primarily provide a medium for entities, whether corporations or governments, to raise large amounts of capital from global markets. These entities issue such bonds when their local markets cannot meet their capital needs or when they want to diversify their investor base. They also issue international bonds to benefit from lower interest rates or favorable market conditions overseas.In terms of investors, international bonds deliver an excellent tool for diversifying their portfolios geographically and by currency, which helps spread and mitigate risk. These bonds also offer potential higher yields especially if issued by entities in emerging or developing economies. Moreover, they provide exposure to different interest rate movements and economic conditions, thereby creating opportunities for potential gains due to foreign exchange fluctuations. Despite the additional risks – like political instability, economic volatility and foreign exchange risks, savvy investors are often willing to venture into international bonds for their many benefits.

Examples

1. Eurobond: A Eurobond is an international bond that is issued in a currency not native to the country where it is issued. For example, a Japanese company might issue a Eurobond in USD in the European market. The purpose is to raise funds in a different currency which might be beneficial based on the interest rates and other economic factors.2. Foreign Bond: A foreign bond is an international bond issued by a foreign company or government in another country’s bond market and in the currency of the host country. For example, a U.S. corporation issuing bonds in the UK bond market denominated in British pounds, such as the well-known “Yankee Bonds”.3. Global Bond: A Global bond is a type of bond issued and traded outside the country where the currency of the bond is denominated in. This means it’s issued simultaneously in multiple countries. For example, The World Bank issues bonds on global markets to fund its projects around the world.Each of these are solid examples of how international bonds function within the global economy and can be viable methods for companies and governments to raise funds.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Foreign Bonds
• Global Bonds
• Eurobonds
• Yankee Bonds
• Bond Currency Risk

Sources for More Information

• Investopedia
• Corporate Finance Institute
• The Balance
• Charles Schwab