Eurodollar Bond
What Is an Eurodollar Bond?
An Eurodollar bond is a U.S.- dollar named bond issued by an overseas company and held in a foreign institution outside both the U.S. what's more, the issuer's nation of origin. Eurodollar bonds are an important source of capital for multinational companies and foreign governments the same. An Eurodollar bond is a dollar-designated type of Eurobond.
Understanding Eurodollar Bonds
Try not to let the name confound you! Albeit the Eurodollar originated in London, the name today alludes to the history, as opposed to the currency, as these bonds are traded worldwide not just in Europe. Eurobonds are named after the currency they are designated in. For instance, Euroyen bonds are designated in Japanese yen, and Eurodollar bonds are named in American dollars, separately. The Eurodollar is a U.S. dollar-named bond sold by a non-American bank or corporation arranged outside the U.S.
At the point when a government or multinational firm chooses to collect or borrow money for its financing needs from foreign investors, they can opt for Eurodollar bonds. For instance, in the event that a Chinese bank held dollar-designated bonds issued by a Japanese company, this would be viewed as an Eurodollar bond. These time deposits permit purchasers to exploit varieties in currency exchange rates. Following our model, in the event that the Chinese bank held the Eurodollar bond in a Japanese account named in U.S. dollars, it will earn interest on the bond, which will likewise be accrued in dollars. In effect, the bonds pay interest and principal in dollars held on deposit outside of the U.S. As well as paying interest, most Eurodollar bonds have fixed maturities.
The term "Euro" alludes just to the reality the bond is issued outside of the boundaries of the currency's nation of origin; it doesn't mean the bond was issued in Europe or named in the euro currency. For instance, an Australian company can issue an Eurodollar bond designated in U.S. dollars by its Japanese subsidiary.
Special Considerations
Eurodollar bonds are advantageous on the grounds that they are subject to less regulatory limitations. The Federal Reserve Bank, which is the central bank that issues the US dollars, has no jurisdiction over the dollars on the grounds that the bonds are issued and traded outside the U.S. This means that the bonds are not subject to any reserve requirements set by the Fed. Additionally, Eurodollars are not registered with the United States' Securities and Exchange Commission (SEC) and, accordingly, can be sold at somewhat lower interest rates than in the U.S., considering increased flexibility, and creative structuring of financial instruments.
Eurobonds contrast from foreign bonds in that foreign bonds are issued by an international company to investors, and are named in the currency of the country where the foreign bonds are issued. A foreign borrower issues foreign bonds in a host country's financial market and the host country's currency. These bonds are subject to the regulations forced on all securities traded in the national market and, now and again, to special regulations and disclosure requirements overseeing foreign borrowers.
Features
- An eurodollar bond is hence a bond named in U.S. dollars, yet which is issued by a foreign entity and held overseas.
- The term "eurodollar" alludes to U.S. dollar-designated deposits at foreign banks or at the overseas parts of American banks.
- Eurodollar bonds enjoy several benefits for global corporations and give them an important source of debt financing all through the world.
