Which statement correctly describes a eurobond?

Which statement correctly describes a eurobond?

• A. They are denominated in the local currency of the issuer.
• B. They must have collateral backing.
• C. They are only issued by governments.
• D. They are denominated in a currency different from the financial centre where issued.

Answer: (D)

Eurobonds are defined by the currency in which they are issued being different from the currency used in the market where the bond is issued. This cross-border, cross-currency feature is what makes a bond a eurobond, enabling issuers to reach international investors and cater to demand for a specific currency regardless of the local market’s currency. For example, a company or government can issue a bond in London in a currency such as US dollars or euros, even though the transaction takes place in a market where the local currency is pounds. This currency mismatch at the point of issue is the key characteristic. The other statements aren’t defining features. Collateral backing is not required for eurobonds; many are unsecured. They are not limited to governments; corporations frequently issue eurobonds as well. And while they are commonly issued in offshore markets, the essential point is the denomination in a currency different from the financial centre where the issue occurs.

Eurobonds are defined by the currency in which they are issued being different from the currency used in the market where the bond is issued. This cross-border, cross-currency feature is what makes a bond a eurobond, enabling issuers to reach international investors and cater to demand for a specific currency regardless of the local market’s currency. For example, a company or government can issue a bond in London in a currency such as US dollars or euros, even though the transaction takes place in a market where the local currency is pounds. This currency mismatch at the point of issue is the key characteristic.

The other statements aren’t defining features. Collateral backing is not required for eurobonds; many are unsecured. They are not limited to governments; corporations frequently issue eurobonds as well. And while they are commonly issued in offshore markets, the essential point is the denomination in a currency different from the financial centre where the issue occurs.