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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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