International Financial Markets II

Euro BondsDipak Abhyankar

Euro Bond and Euro CreditWe are discussing about foreign currency denominated instrumentsEuro Instruments

EuroBondEuro Credits i.e. Euro Loans

EuroBond and Euro CreditEuroBondGenerally issued to public. Individuals and corporate/ institutions are lendersEuro CreditBorrowed from Banks. Banks are lenders

Floating rate of Interest

Fixed / Floating rate of Interest

Listed and traded on exchanges; price variesNot listed; Not Traded

Issue process is long and time consuming

Relatively less time consuming process of borrowing

Long maturities

Medium term maturities

Corporate Bond

Debt (Loan) instrument issued by corporate to PublicPublic (Individuals and institutional investors) become lenders and the issuer is the borrowerInterest is paid as declared at the time of issue

Context of Euro BondCurrencyIssuerDomestic BondHomeHome ResidentForeign BondHomeForeign EntityEuro BondForeignHome Resident orForeign Entity; either

Context of Euro BondCurrencyIssuerDomestic BondHomeHome ResidentForeign BondHomeForeign EntityEuro BondForeignHome Resident orForeign Entity; either

Coupon Rate

Coupon Rate is the Interest Rate paid on face valueIt is payable periodically (normally p.a.)

Coupon word is because of historical practice of detachable coupons to bond; for interest receipt(See picture)

LIBOR

London InterBank Offered RateThe interest rate at which prime banks offer dollar deposits to other prime banks in London

Used as benchmark ratefor eg. LIBOR + 1% etc

Types of BondStraight BondZero Coupon Bond ZCBDeep Discount Bond DDBBond with OptionCallable BondPutable BondBond with Warrant

Straight BondCoupon Rate Interest is paid periodically(usually 1 year)

Zero Coupon BondCoupon Rate Interest is calculated on compounding basis(usually 1 year)No interest is paid periodicallyMaturity Value is paid at the endIssued at face value

Deep Discount Bond(is very similar to Zero Coupon Bond)Coupon Rate Interest is calculated on compounding basis (usually 1 year)No interest is paid periodicallyMaturity Value (Face Value) is paid at the endIssued at Discounted value

Bond with OptionThis can be Straight Bond/ ZCB/ DDBOption to Issuer to redeem early (Call Option)Callable BondOption to investor to redeem early (Put Option)Putable Bond

Bond with WarrantWarrant giving Right to buy equity shares on priority basisExtra Carrot to make bonds attractive

Junk Bond

High Interest Rate

PetrodollarsDipak Abhyankar

PetrodollarsDeposits by countries that receive dollar revenues from the sale of petroleum to other countries;the term commonly refers to OPEC deposits of dollars in the Eurocurrency market.

The funds that are controlled by oil-exporting countries and have been used to pay for oil imports. Petrodollars are a huge pool of funds available for investment and the purchase of goods and services. Although stated in terms of dollars, the term generally refers to all currencies.

OPEC

Organization of Petroleum exporting countries

PetroDollar Recycling

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