What are the distinctive features of a Eurobond in comparison to a traditional onshore bond? How is it different from a foreign bond? What is a “bought-deal” in a Eurobond offering? What role does the ‘gray market’ play in the Eurobond market? (2)

Eurobond is a bond issued in a currency other than the currency of the country or market in which it is issued. Usually, a eurobond is issued by an international syndicate and categorized according to the currency in which it is denominated. A eurodollar bond that is denominated in U.S. dollars and issued in Japan by an Australian company would be an example of a eurobond. The Australian company in this example could issue the eurodollar bond in any country other than the U.S.

Eurobonds are attractive financing tools as they give issuers the flexibility to choose the country in which to offer their bond according to the country's regulatory constraints. They may also denominate their eurobond in their preferred currency. Eurobonds are attractive to investors as they have small par values and high liquidity.Offered for sale simultaneously in a number ofcountriesLimited regulation, no withholding tax, lower interest rate

• Minimum regulatory control• Wider sales coverage– Countries may impose restrictions• $ issue cannot be sold in US until seasoned for 90 days• Disclosure as per market practices• Listing is usual• Fast issue• Overcomes problem of differences in national regulation18 • Issuing cost about 2 to 2.5%• Low interest servicing cost for issuer• Investor incentives– diversified currency portfolio– tax benefits• Investor concerns– less liquidity– Less information disclosure

The main difference between a Eurobond and a foreign bond is Eurobond is the bond denominated in any currency which is different than that of the country where it is issued, whereas foreign bond is the bond denominated in the currency of the country in which the foreign entity issues it. An example is euroyen and samurai bond.

A bought-deal means an entire share issue could be purchased by an underwriter to resell to investors. Underwriters only perform a “bought-deal” when they are confident enough about the demand of the potential share issue. Gray market is the place where new share of issues are bought and sold before they are officially traded – trading on a when-issued basis

– at premium or discount– Issue terms can be adjusted in response to grey market price– Retail investors should monitor these prices, see if institutional investors are getting a discount