Which of the following statements is NOT CORRECT? a. Any bond sold outside the c
ID: 2650164 • Letter: W
Question
Which of the following statements is NOT CORRECT?
a.
Any bond sold outside the country of the borrower is called an international bond.
b.
Foreign bonds and Eurobonds are two important types of international bonds.
c.
Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
d.
The term Eurobond applies only to foreign bonds denominated in U.S. currency.
e.
A foreign bond might pay a higher nominal interest rate than a U.S. bond.
Explanation / Answer
The wrong statement is ascertainable if you consider the important points of the basic concept of Foreign bond and Euro bonds. They are explained below:
1. Foreign bond;
a. It is a type of international bond.
b. It is issued by a foreign borrower in domestic country
c. It is denominated in domestic currency.
d. It is used to raise capital in a domestic market
e. It is attractive for domestic residents. They can include foreign bond in their portfolio wthiut currency risk exposure.
2. Now consider the concept of Eurobods:
a. It is also atype of iternational bond
b. It is denominated in a currency other than the currency of the country where it is introduced.
c. It need not be in US currency. It can be issued in yen. In that case it is euro bond in Yen. It will be sold in ay country other than Japan, since Yen is the domestic currency of Japan.
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Considering the above points of definitions, you will observe that statement d. is not correct. It states that Euro bonds apply only to foreign bonds denominated in US currency. If it is issued outside USA then it is US dollar eurobond. If it is introduced in USA market by a borrower of a country other than USA then it will be foreignbond. EURO bond will be in any currency other than the currency of the country wher it is issued. Thus it ca be in european currency, Yen, or in any other currency. So this statement is not true.
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All other statements are correct. They are:
a. Bond sold outside the country of borrower is known as international bond. If borrower introduces bond in its own country capital market it becomes domestic bond.
b. Foreign bond and Euro bond both are international bond as they are issued outside the domestic capital market of borrower.
c. Foreign bods are always denominated in the currency of the country wher it is sold. If a foreig bond is introduced in Idia the it will be in rupee currency.
e. A foreign bond ca pay higher nominal interest rate than US bod. It will depend upo variation in inflation rate and risk factor of the USA and other concerned foreign country.
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Answer: Statement (d) is not correct.
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