Question

Chapter 9 International Business - Essay Question 3: What is the role of debt in national capital markets, and what form does company debt normally take? Describe the different types of international bonds.

Answer 1

Soln. Role of debt in national capital markets - Debt plays a vital role in the national capital market as it is cheaper way of financing when compared to equity. The debt in market allows the money to be funded to the lender for different purposes. Debt market allows the government to have the money raised from different organizations and led the execution of development activities with the funded money. It allows the individual, organization or government to organize and fund money for different development activities. In different words, it also helps in the allocation of resources in the economy.

Company debt normally take the form of bonds. Different bonds with different rates are issues to the public, organization as per the need and requirement.

Different types of international bonds are listed below -

International bonds are typically bonds that are issued in a country by a foreign entity. The entity does not belong to the original country, where the bonds are issues or raised.

1. Euro Bond - This bond is issued in a country by foreign entity in the currency of local country

2. Global Bond - Global bond is also issues in a country by foreign entity but the only difference is the bond can also be traded in the foreign entity's country, whose currency is taken into consideration for bond valuation

3. Eurobond - This bond is different from Euro and Global bond in the sense, bond is traded in countries other than the country in which bond's value is measured.