International Finance - International Debt Markets

what is Centralized debt denomination

borrow in headquarters' currency

ex.: US company in Belgium debt is issued in USD

what is Decentralized debt denomination

borrow in different currencies of subsidiaries

Ex.: US company in Belgium issue debt in Euro

what are domestic bonds

Bonds that are issued and traded in the domestic market (and denominated in the domestic currency)

what are International bonds

Bonds traded outside the country of the issuer

what are Foreign Bonds

Issued in a domestic market by a foreign borrower (Ex. US company issuing JPY bond in Japan)

• Denominated in domestic currency

• Marketed to domestic residents

• Regulated by domestic authorities

what are Eurobond

Issued simultaneously in various markets, outside the specific jurisdiction of any country

• Denominated in one or more currencies

• This label, set before the euro creation, does not mean that they are issued in EUR

• They mature in less than 10 years (usually 5)

Straight fixed-rate

Zero coupon bonds or coupon

Floating-rate notes

Coupon based on base rate such as LIBOR or Euribor

Equity-related bonds

• Convertible bond: Convertible into a number of shares of equity

• Warrant: Grants the bondholder the right to purchase a certain amount of common stock at a specified price

what is Dual-currency bond

Issued and paying coupons in one currency but paying back principal in another

how to calculate the annual yield

annual yield = (1+semiannual yield)² - 1

what are Eurobonds

• Issued by corporations/institutions/sovereigns to the public

• Fixed or floating interest

• Listed and traded on exchanges

• Long maturities

• Issuance process is relatively long and time consuming

what are Eurocredits

• Borrowed from banks Banks are lenders

• Generally floating interest

• Not listed, not traded

• Any maturity

• Relatively easy issuing process

what is a credit line

allows borrower to withdraw as a loan any amount of money up to a fixed limit

what is a term loan

loan with a fixed maturity for a fixed amount

what are syndicating loans

involves multiple lenders (banks) joining together to provide a large loan to a borrower.

what is the formula of the All-in-cost (AIC)

Why source debt internationally

• Lower the AIC

• Access more liquid debt markets

• Diversify funding sources

• Hedge foreign currency revenues