Eurobond Essay

Bonds, mutual funds and stocks are the most prevalent asset categories in business, thus they attract mainly the market’s attention. But other significant investment prospects must also b kept in mind by an investor like futures, options, and currencies. Even though these types of investments are quite complicated and usually aimed at experienced investors, it’s very important to understand how they work or function to enable an investor to decide if these types of investments would play a role in an investor’s overall investment plan.

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And for an international investor, a Eurobond might be quite an attractive investment to choose. A Eurobond is a bond distributed and exchanged internationally that is denominated in a currency that is not the currency of the market or country where it was distributed. For example, a Eurodollar bond denominated in American dollar maybe issued in other countries other than the U. S. A. like Canada by a German firm. A real-world example of this is a Eurobond launched by the World Bank denominated in Norwegian Krone and listed or distributed in European market, or in Luxembourg to be more precise (World Bank, 2001).

Eurobond is a very interesting financing instrument that offers the provider the flexibility of selecting the country in which to bargain their bonds according to that country’s regulatory restrictions. It also gives the provider the free will to decide what currency their Eurobond would be denominated. For an investor, it is also a very appealing financial investment to make because it offers small par values and relatively high liquidity. This gives the investor a good rate of return or cost of capital.

But there is an issue for the stakeholder in this type of bond. Since the Eurobond is not subjected to withholding tax, the stakeholder must declare in his / her income tax the revenue attained. Eurobonds are actually classified in five categories: (1) Straight Eurobonds, bonds issued at fixed price with fixed conversion; (2) Variable rate notes; (3) Subordinate issues, bonds wherein the investor’s right to payment is subordinate to the right of the issuers. (4) Assed-backed issues, bonds wherein the credit of the collateral depicts separate assets; (5) Convertibles, bonds that may be traded for shares at a fixed value. To end this discussion, some things must be kept in mind regarding Eurobonds. Eurobonds are tradable tools; its purpose is to be bought and sold for the duration of maturity. Also, Eurobonds are not subjected to taxation and mostly free from government policy and restrictions.

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