Question

Briefly discuss some of the services that international banks provide their customers and the market place.

Chapter 12: Describe the differences between foreign bonds and Eurobonds. Also discuss why Eurobonds make up the lion’s share of the international bond market.

Answer 1

Even the International Banks may provide the same services which an ordinary local bank would provide to its customers including savings account, checking account, arranging loans, debit & credit card facilities etc but the International banks provide many specialized services apart from this including the following :-

1.) Foreign Exchange Services- These international banks like J.P. Morgan Chase and Morgan Stanley provide foreign exchange for import and export purpose.
2.) Finance for Trading Purpose – These banks also arrange the finance for the traders who want to deal in foreign currency like a trader in India would want to Trade in British Pounds.
3) Hedging Services – An Investment bank hedges the funds by buying options like Swaps or getting into contracts for the same.
4) Investment Banking Services- These banks also provide investment banking services like advisory services on Mergers and Acquisitions, IPO services, deal advisory services, transaction advisory services, fund raising services , portfolio management services etc.

The difference between foreign bonds and Eurobonds is as follows :-
Foreign Bonds- Bonds issued by a firm incorporated in a foreign country that trade in the national bonds market of another country in that country’s currency are called foreign bonds. For example -
The bonds issued by firms that are incorporated outside the United States that trade in the United States and are denominated in the U.S. Dollars.

Eurobonds – Eurobonds are issued outside the jurisdiction of any one country and are denominated in a currency different from the country in which they are sold. They should not be confused to be bonds denominated in Euros. For Example - A bond issued by a Chinese firm that is denominated in Yen (Japan’s currency) and traded in Markets outside Japan is an example of a Eurobond.

The reasons why Eurobond’s make up the majority share of International Bond’s Market is as follows :-

1.) They are subject to less regulations than most of the domestic bonds in most of the Jurisdictions and are less restricted to the strict SEC regulations imposed by the U.S. Markets.

2) Also they help in evading taxes as they are bearer bonds and help in providing anonymity thus reducing the taxes on the interest earned.


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