Question

What is the differences between a Eurobond and a foreign bond?

What is meant by the three-month forward exchange rate?

What are the different types of exchange rate risk?

Answer 1

Eurobond is issued by international borrower and sold to lender/(s) in foreign country in a currency other than the currency in which bond is already denominated. Like, Indian company can issue Rs bond in US.

Whereas, foreign bond is issued in host country's financial market by foreign entity

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It is an exchange rate at wihch bank or financial institution will be agree to xchange currency after 3 months.

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Economic risk - With the change of inflation, interest or CAD of country foreign there will be appreciation or depriciation of currency which may create positive or negative impacy on chashflows

Tranlational risk - If exchange is flactuated, same may impact in reporting figure of a company having foreign operation.

Contingent risk - It appeas with sudden change of country's economic and political environment.