5 important facts about Eurodollar bonds
Eurodollar is the national currency that includes American dollars that is issued by International countries into some financial schemes offered by corporations or firms located in other country. It is one of the crucial source of income or capital to the corporations that operate in different regions of world. The dollar dominated currency is supplied to the third county which means the whole procedure operates on the involvement of three various countries. The supplier country sells the bond to the investor located in other country by providing them the currency of US dollars, which basically plays a role of third country in this process.
The concept of Eurodollar started in London and the trading of such currency is not limited to European countries but it regulated in different parts of world such as Germany, France and Asian countries. This currency is denominated into paisa in Pakistan and Yen in Japan respectively. Basically it is a bond which is being sold by the companies that are located outside United States.
Advantageous for governments and firms
If any state or a multinational corporation opt to borrow some money or asks for some fund for meeting their expanses and financial needs for constant running of the particular firm, in a case where it is going through a tough time. Then in such a situation of crises borrowing Eurodollar bond will be really helpful to them. For example if any of Chinese bank issues the bond into another country’s account such as Japan ,with currency being denominated in American dollars, then China will acquire maximum profit on bond and it can increase in dollars.
Free from security restrictions
These bonds are of extreme benefit because none of the restriction related to its trade is applied by Federal Reserve Bank. It basically is the central bank that issues and sells U.S dollars. But at the same time it lacks the power to build up legal decisions regarding the selling of these U.S dollars as they are traded all over the world outside U.S, which makes it very clear that Federation cannot set any obligations on this.
No links with SEC
Most of the people have the concept of Eurodollar bonds set in their minds in such a way that they think these bonds are registered and associated with the Security and Exchange Commission of U.S, while it is completely wrong. Because it has no links with SEC, it can be sold with on lower interest than the American dollars which increases the creativity for structured investment products.
Is it similar to foreign bonds?
Some people mix up Eurobonds with foreign bonds, while both the bonds completely differ from each other. In case of foreign bonds, Some International Corporation issues a bond to the investors, and the money is converted in the currency of those countries where such bonds are being issued. The process of borrowing foreign bonds involves the supply of bonds in the financial corporations and market of host country. The only difference between Eurodollar bond and foreign bond is that these have some specific restrictions imposed on them by Federation. Also borrowers have to keep in their mind about some set of regulations regarding the trade of these bonds in national markets.