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What are Foreign Bonds?

H. Bliss
H. Bliss

Foreign bonds are a type of international bond. If a company issues bonds in another country using any currency, the bonds are considered to be international bonds. Foreign bonds are issued in a country other than the originating country of the company issuing the bonds, using the currency of the country in which the bond is issued. A bond traded outside the company's country of origin but in the company's currency is not usually considered to be a foreign bond. When they are not traded in Europe, foreign bonds are often given names specific to the country of issue that identifies where the bond is issued, especially if the country has a strong market for bonds.

A bond is essentially a note of debt from the borrower to the lending party. Whether a bond is foreign depends on the lender's country of residence, the currency in which the bond is sold, and the country of origin of the financial institution creating the bond. Bonds usually include periodic interest payments that are paid to the buyer of the bond, which means that the lender who received the bond will get a steady return in interest paid from the bond if she carries the bond to the end of the term. Borrowing entities using foreign bonds are often companies, but foreign bonds can also be issued by governments, including countries, cities, and states.

Man climbing a rope
Man climbing a rope

Eurobonds are foreign bonds that, while most often issued in Europe by non-European borrowers, can be issued in many other countries. The distinguishing feature of a Eurobond is that the bond is issued outside the borrower's country of origin, in a currency other than that which the borrower's country of origin uses. Eurobonds from some countries have nicknames of their own to distinguish the country in which the bond was issued. Kangaroo bonds are Eurobonds that were issued in Australia. Shogun bonds are bonds issued in Japan, and samurai bonds are Eurobonds issued in Tokyo using yen currency.

Types of bonds include short-term, long-term, and marketable or unmarketable bonds. A marketable bond is a bond that can be resold to another party before the bond matures. Non-marketable bonds include savings bonds, which can only be held by the original purchaser until the security matures. When working with bonds, the interest rate is typically called the coupon, a name originating from the now-obsolete tear-off paper coupon, the original method for tracking interest payments on bonds.

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