In return for its conferring the right to put the

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Unformatted text preview: 5 years thereafter or when and if the firm takes specified actions, such as being acquired, acquiring another company, or issuing a large amount of additional debt. In return for its conferring the right to “put the bond” at specified times or when the firm takes certain actions, the bond’s yield is lower than that of a nonputable bond. aThe claims of lenders (i.e., bondholders) against issuers of each of these types of bonds vary, depending on the bonds’ other features. Each of these bonds can be unsecured or secured. Eurobond A bond issued by an international borrower and sold to investors in countries with currencies other than the currency in which the bond is denominated. foreign bond A bond issued in a host country’s financial market, in the host country’s currency, by a foreign borrower. A Eurobond is issued by an international borrower and sold to investors in countries with currencies other than the currency in which the bond is denominated. An example is a dollar-denominated bond issued by a U.S. corporation and sold to Belgian investors. From the founding of the Eurobond market in the 1960s until the mid-1980s, “blue chip” U.S. corporations were the largest single class of Eurobond issuers. Some of these companies were able to borrow in this market at interest rates below those the U.S. government paid on Treasury bonds. As the market matured, issuers became able to choose the currency in which they borrowed, and European and Japanese borrowers rose to prominence. In more recent years, the Eurobond market has become much more balanced in terms of the mix of borrowers, total issue volume, and currency of denomination. In contrast, a foreign bond is issued in a host country’s financial market, in the host country’s currency, by a foreign borrower. A Swiss-franc–denominated bond issued in Switzerland by a U.S. company is an example of a foreign bond. The three largest foreign-bond markets are Japan, Switzerland, and the United States. Review Questions 6–6 What are typical maturities, denominations, and interest payments of a corporate bond? W...
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