Eurodollar Debt Flashcards
All of the following statements are true regarding Eurodollar bonds EXCEPT:
A. Eurodollar bonds are issued by both domestic and foreign corporations
B. payment of interest and principal is made in either U.S. dollars or a designated foreign currency
C. trading does not take place in the United States
D. the securities are not registered with the SEC
The best answer is B.
Eurodollar bonds are denominated only in dollars and are payable only in dollars. These bonds are issued by both domestic and foreign corporations outside of the U.S. markets to take advantage of lower interest rates. Since trading does not take place in the U.S., these securities are not registered with the SEC.
Which of the following statements are TRUE about Eurodollar bonds?
I The bonds are issued in the U.S.
II The bonds are issued outside the U.S.
III The purchasers are U.S. residents
IV The purchasers are foreign residents
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is D.
Eurodollar bonds are issued outside the U.S. and are purchased by foreigners. These bonds are denominated in, and make payment in, U.S. dollars. The bonds are not registered for sale in the U.S.
Which of the following would be purchasers of Eurodollar bonds?
I United States investors
II British investors
III French investors
IV Japanese investors
A. I only
B. II and III only
C. II, III, IV
D. I, II, III, IV
The best answer is C.
Eurodollar bonds are purchased by foreign investors worldwide. They are bonds issued in Europe that pay in U.S. currency; and are attractive to investors who wish to receive payments in U.S. Dollars. U.S. investors cannot buy Eurodollar bonds because they are not registered with the SEC, and hence cannot be offered within the United States. Issuers use Eurodollar bond financing because there are fewer regulatory hassles (and costs) in issuing these securities, than with doing a similar bond offering in the United States.
Which of the following participate in the Eurodollar bond market?
I Domestic investment banks
II Foreign commercial banks
III Domestic commercial banks
IV Domestic thrift institutions
A. I, II, III
B. II, III, IV
C. I, III, IV
D. I, II, III, IV
The best answer is A.
Thrift institutions do not operate in the foreign markets. They only conduct business in the State in which they are organized, with their primary purpose being to give mortgages on local real estate, funded by deposits raised locally. All the others participate in the Eurodollar bond market.
Payments on Eurodollar bonds are made:
A. only in U.S. dollars
B. only in designated foreign currencies
C. in either U.S. dollars or designated foreign currencies
D. in Special Drawing Rights (SDRs)
The best answer is A.
Payments on Eurodollar bonds are made only in U.S. dollars.
U.S. Corporations issuing Eurodollar bonds are:
I subject to foreign currency exchange risk
II not subject to foreign currency exchange risk
III subject to filing with the SEC
IV not subject to filing with the SEC
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is D.
Since these bonds are denominated in U.S. Dollars and payable in dollars and not the currency of the country in which they are sold, Eurodollar bonds are not subject to foreign currency exchange risk. Thus, if the foreign currency appreciates, it has no effect on the issuer, who is obligated to pay in dollars (not the more expensive foreign currency). Also, since these bonds are issued outside the U.S., the issue does not have to be registered with the SEC.
Which of the following statements are TRUE about Eurodollar bonds?
I Interest received from the bonds is subject to U.S. taxation
II Interest received from the bonds is not subject to U.S. taxation
III The bonds are purchased only by foreigners
IV The bonds are purchased only by U.S. citizens
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is C.
Eurodollar bonds are only issued outside the U.S. and are purchased by foreigners. The bonds are not registered for sale in the U.S. The bonds are not subject to withholding taxes and are issued in bearer form.
