Eurobond

  

There are three countries involved in eurobonds: the lending country, the currency of the bond, and the borrowing country (not that these are lent by countries, just that these bonds are coming from and going to companies in those countries).

To be a eurobond, a bond must study abroad for at least one semester during college. Er...okay. Rather, it must have a currency that’s different from the lending country, or a currency that’s different from the borrowing country. Basically, eurobonds are bonds that are being tossed around like a beach ball by lenders and borrowers in countries with other currencies.

For instance, a Japanese company could lend a loan in British pounds to a U.S. borrower. Why bother? Well, because it helps multinational companies keep the capital flowing abroad. Plus, it’s common for international companies to choose loan currencies based on that country’s regulatory laws. The more business-friendly, the better. For borrowers, eurobonds are great for their liquidity, but are risky because of how currency rates can change among themselves.

Related or Semi-related Video

Finance: What is LIBOR?21 Views

00:00

Finance allah shmoop what is a lie Boer No it's

00:07

not the result of these two zoo animals Mating lie

00:10

Boer stands for london interbank offering rate And it's basically

00:15

just the british quote fed unquote central bank rate reflecting

00:20

the absolute lowest interest rate at which the british banking

00:23

system well loan money to its best Most well heeled

00:26

customers like you know sainsbury's and bp and barclays and

00:30

the guy who plans royal weddings So library is the

00:33

best or cheapest rate at which the british banking system

00:36

will lend money Most loans come at some premium to

00:40

lie before i risk your loans might come in something

00:42

like on a live or plus fifty basis points or

00:45

something like that so that if lie boris currently quoted

00:48

at two point two five percent interest well then the

00:50

lie bore plus fifty loan would be loaned out at

00:53

two point seven five percent interest And libras important has

00:57

been around forever and much of the world uses it

00:59

as thie pegging number two then add some risk percentage

01:03

on top of it when they quote loans to whoever

01:06

they're loaning money to That's basically it No need for 00:01:08.819 --> [endTime] any wild animals teo you know get wild

Up Next

Econ: What is the European Monetary System? (How the Euro Came To Be)
7 Views

What is the European Monetary System? (How did the euro come to be) The European Monetary System is the agreed upon currency that’s used by many...

Find other enlightening terms in Shmoop Finance Genius Bar(f)