What is Eurobond? How to make an investment?
Eurobond is a debt securities issued by a country or organization in foreign currency. Eurobonds are usually issued in US dollars or Euros and traded in international markets. Those who want to invest in Eurobond can buy these securities through banks or intermediary institutions.
What are the advantages and disadvantages of Eurobond investment?
The most important advantage of Eurobond investment is that it provides high interest income. Since Eurobonds are generally issued by developing countries, these countries have a high risk premium and therefore high interest rates. Eurobond investors can receive this interest income on a regular basis.
Another advantage of Eurobond investment is that it offers the opportunity to benefit from the exchange rate. Since Eurobonds are denominated in a foreign currency, investors can earn both interest income and foreign exchange gain if that currency appreciates.
The disadvantages of Eurobond investment are as follows:
- Currency risk: Since Eurobonds are denominated in a foreign currency, investors may lose both interest income and principal if this currency depreciates. Therefore, it is important to follow the exchange rate movements when investing in Eurobonds.
- Liquidity risk: Since Eurobonds are traded in international markets, it can sometimes be difficult to find buyers or sellers. In this case, investors may not be able to cash out whenever they want, or they may have to sell at a loss. Therefore, it is necessary to consider the liquidity situation when investing in Eurobonds.
- Country risk: The economic and political situation of the Eurobonds issuing country or institution may also affect the return on investment. For example, if the country or organization is at risk of default or bankruptcy, this can devalue Eurobonds or delay interest payments. For this reason, it may be useful to research the credit rating and reliability of the country or institution when investing in Eurobonds.
How to invest in Eurobond?
Those who want to invest in Eurobond should first learn about which country or institution issuing, in which currency, maturity, interest rate and coupon payment dates. They can get this information from the websites of banks or intermediary institutions or from customer representatives.
Then, you can open an account by choosing a suitable bank or brokerage house and start trading Eurobonds.