Eurobonds and Globalisation
Table of Contents
Introduction 2
1. Background 2
2. Origins of the Eurobond Market 5
3. Eurobonds: Costs and Benefits 7
4. Organizations Working with Eurobonds 9
5. Eurobonds and Globalisation 10
6. Conclusions 12
Reference List 13
Introduction
This paper relates to Eurobonds and Eurobond market. The objective is to discuss origins of Eurobonds and how the instrument impacted globalization. In addition, the paper also considers organisations that actively work with Eurobonds. The paper consists of several sections – background, origins, costs and benefits of Eurobonds, organisations issuing Eurobonds and the effect on globalisation. A final section summarises the paper. First section provides general background of the security. A second section discusses origins of Eurobonds and how they evolved over time. A third section considers costs and benefits of the security. Next section discusses different organisation that may find Eurobonds useful. A fifth section considers the link between Eurobonds and globalisation.
1. Background
Eurobonds are fixed income securities that have all features of standard bonds. However, the key difference is their relation to a market. As suggested by Bank of England (1991: 521): “Eurobonds are traditionally defined as bonds which are issued, ad largely sold outside the domestic market of the currency they are denominated”. Madura (2011: 70) defines that: “Eurobonds are bonds that are sold in countries other than the country of currency denominating the bonds”. Hence, this means that Eurobonds are foreign bonds on the market they are traded. For instance, A German bond on the US market is an example of the Eurobond. Furthermore, a Brazilian bond issued in the UK is also an example of the bond. According to Stanford (n.d.: 3): “Eurobonds are denominated in a particular currency in several capital markets simultaneously”. As Bank of England (1991) mentions, the Eurobonds are generally served by international market players. Eurobonds should be distinguished from foreign bonds that are issued by foreign borrowers though belong to domestic market. ECB (2005: 9) notes: “Eurobonds differ from foreign bonds in that a Eurobond issues may be denominated in any currency and is sold across a range of markets simultaneously”. Eurobonds are truly international bonds that provide borrowers with access to funds and investors with good investment opportunities. Tax avoidance and anonymity of investors are their key features (Stanford, n. d.). Therefore, Eurobond market was a response to more trading and investment activity.
As Bank of England (1991: 521) notes: “The Introduction in 1963 of an Interest Equalisation Tax gave impetus to the development of the Eurobond market”. As mentioned by Madura (2011), the bonds were the tool of the US government to reduce investment from the US in foreign securities. The market was established in the 1960s and has grown dramatically since then. The growth has been rapid during the 1960s with market size of $3 billion in 1970 (Bank of England, 1991). As suggested by ECB data (2005: 47), the total volume of Eurobonds has jumped rapidly in the …
