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Chapter 5: Q14DQ (page 680)

What is the danger or concern in floating a Eurobond issue?

Short Answer

Expert verified

The danger related to the issue of Eurobond is foreign exchange risk as the bond is issued in a different currency. To lessen the risk the decision for the currency selection should be taken with proper study and analysis.

Step by step solution

01

Eurobond

All the bonds that are issued by the business entity in the current which is not the same as the local currency of the business entity are known as Eurobonds.

02

Danger or concern in floating a Eurobond issue

Eurobonds are issued in a currency different from that of the country. This increases the chances of foreign exchange risk as well as currency risk like translation exposure.

The decision for the currency selection for denominating Eurobond issues must be made with proper analysis and foresight. Issuing the Eurobonds in the denomination of multicurrency units lessens the effect of foreign exchange risk.

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