Distinguish between a foreign bond, Eurobond, and multi-currency bond. What are the advantages and disadvantages of each to both lender and borrower.

These three types of international bonds differ either in their mix of currencies or in the difference between their currency and the currency of the country in which they are initially sold. For borrowers, they share the advantage of attracting financing from sources that might not otherwise have been available, broadening the demand for the companies’ securities and lowering their costs of capital. They also provide opportunities for companies to raise funds and schedule repayments in currencies that best hedge their anticipated future cash flows, reducing their risks. For lenders, these bonds offer opportunities to invest in companies in their domestic currencies. There are few if any disadvantages. More specifically:

(1) A foreign bond is a bond issued by a foreign borrower in the currency of the country of issue (for example, the Swiss pharmaceutical company Bayer issuing a U.S. dollar denominated bond in the United States).

(2) A Eurobond is a bond denominated in a currency other than that of the country of issue (for example, Proctor & Gamble issuing a U.S. dollar denominated bond in Germany). Eurobonds also have the advantages of limited regulation and recordkeeping and no tax withholding requirements, which further lower the interest rate required by investors.

(3) A multi-currency bond is a bond denominated in more than one currency (for example, Toyota issuing a bond promising interest payments in yen and the repayment of principal in U.S. dollars).