Lecture 13_NONUS - L ectur e 13 N on-U S Bonds L 13 Xi aodi...

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Unformatted text preview: L ectur e 13 N on-U S Bonds L 13 Xi aodi ng L iu FI N 4243 Fall 2009 1 N on-U S Bonds • For eign (non-US) issuer s – Tr ading in t he US • For eign mar ket – Not t r ading in t he US • Ext er nal bond mar ket or • I nt er nat ional bond mar ket L 13 Xi aodi ng L iu FI N 4243 Fall 2009 2 N on-U S Bond M ar k ets • Non-US bond mar ket s become i ncr easingly mor e impor t ant • I ncr eased awar eness of non-US bond m ar ket s as pot ent ial sour ces of r et ur n enhancement and/or r isk r educt ion • M anager s t ake a mor e global appr oach L 13 Xi aodi ng L iu FI N 4243 Fall 2009 3 W hy I nvest in nondollar b onds? 1. Diver sificat ion 2. I ncr eased oppor t unit ies t o find value t hat mult iple mar ket s pr ovide 3. An act ive cur r ency play by not t o hedge t he cur r ency component L 13 Xi aodi ng L iu FI N 4243 Fall 2009 4 F or eign Exchange Risk • Cash flows ar e in for eign cur r ency • I f t he for eign cur r ency depr eciat es r elat ive t o t he U.S. dollar , t he dollar v alue of t he cash flows will be pr opor t ionat ely less – F or eign exchange r isk • M ay be hedged wit h for eign exchange spot , for war ds, fut ur es, or opt ions – Cost of hedging L 13 Xi aodi ng L iu FI N 4243 Fall 2009 5 P olitical Risk • I nvest ment ’s r et ur n may suffer fr om changes in a count r y’s – Gover nment – L egislat ive bodies – For eign policy maker s – Economic policy changes, et c. L 13 Xi aodi ng L iu FI N 4243 Fall 2009 6 ...
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Lecture 13_NONUS - L ectur e 13 N on-U S Bonds L 13 Xi aodi...

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