Foreign Bond and Euro Bond

Yugyeong Jeong

Foreign bonds are bonds issued by non-residents of the issuing country to investors in that country. The funds from this will not be used within the country of issue, but outside the country of issue. As an entity with external debt, the government can borrow long-term funds from overseas to finance the investment in infrastructure and public facilities. Monetary authorities operate short-term external debt to control the short-term money supply and control inflation. As Foreign Bonds are issued and sold within the country of the bond currency, regulations are strict to protect investors. It is mainly issued in the form of straight bonds, which are acquired and sold mainly by financial institutions of the issuing country, and are listed on the stock exchange of the issuing country. It also exempts non-residents from withholding tax on interest income. However, there are not many companies that can issue foreign bonds in Korea because they require a certain level of credit rating. As an example of Foreign Bond, when a Korean company goes to the United States to issue bonds in dollars, it is called a Yankee bond, and when a bond is issued in yen in Japan, it is called a Samurai bond.

In Euro Bonds, the euro is a concept outside of the bond currency country that is not a monetary unit of the European Union. An issuer issues bonds in a foreign country in a currency other than the currency of that country. For example, if a dollar bond is issued outside the United States in Hong Kong or Singapore, it is called a Eurodollar bond, and if a yen bond is issued outside of Japan, it is called a Euro yen bond. Euro Bonds are acquired by an international syndicate on the Euro market and sold to investors in each country. Since they are traded in several markets other than the bond currency countries, most of them are through public offerings. Although it is listed on the world stock exchange, most of it is over-the-counter. Unlike foreign bonds, Euro Bond does not require a credit rating from a professional review and rating agency, so registration fees are relatively low and interest income tax on Eurobonds is also exempted. The reason companies prefer to issue Eurobonds in the European market is the less stringent bond disclosure system and the relatively easy bond issuance.

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