There are several advantages and disadvantages of euro bonds to borrowers and investors?
Benefits of Eurobond for the Issuer
-Interest rates vary from one country to the other. The issuer can choose the country with
favorable rates.
– Companies study immigrant population patterns to decide on the country and currency to their
benefit. For example, a large population in the U.K. is from the South Asian countries of India,
Pakistan and Bangladesh. Floating a Eurobond in the U.K. in a currency of these native countries
can see huge investments. Immigrants are emotionally attached to their native countries, and will
be keen to invest money in such bonds if the issuer is reputed.
– Financing by issuing Eurobonds is often Cheaper than obtaining a foreign currency bank loan.
– It gives the company the ability to raise funds without having to issue shares.
– Since Eurobonds are normally aimed at institutional investors and not the public, there are no
advertisement costs involved.
Disadvantage of Eurobonds
Foreign exchange risk – also called FOREX risk, currency risk, or exchange rate risk – is the
financial risk of an investment’s value changing due to the changes in currency exchange rates.
What thoughts do you have about Sara Lee’s debt-financing strategy?
– The issuance of the Eurobonds gives the company an upper hand to exploit the favorable