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Definition: Eurodollar Bond
Eurobonds are bonds denominated in a particular currency that are issued by a foreign company, in the capital markets of countries other than the country that issues the denominating currency and the foreign company’s home country. Eurodollar bonds are thus, bonds that are denominated in U.S. dollars that are issued by a non-U.S. based company, in capital markets outside the U.S. and the issuer’s home country.
For example: an Indian bank holding bonds, denominated in dollars that are issued by a Japanese company would be considered holding Eurodollar bonds. The prefix ‘Euro’ is used to signify the fact that these bonds are issued outside the U.S. in a currency different from the currency of the country where these bonds are issued.
Eurodollar bonds are an important way of raising capital for multinational companies as well as foreign governments. This is because the U.S. dollar is the most sought after currency in the international market. They are not registered with the U.S. Securities and Exchange Commission (SEC) and are not under the jurisdiction of the Federal Reserve. As such, they are subject to fewer regulations.
Eurobonds differ from foreign bonds in that foreign bonds are issued by a foreign company to investors, in a capital market and are denominated in the currency of the country where the foreign bonds are issued.
Banks outside the U.S. accept and hold deposits that are denominated in U.S. dollars. Such deposits are called Eurodollar deposits and they are usually large deposits of U.S. dollars in foreign depositories. Eurodollar deposits are used to fund foreign trade because of the stability of the U.S. dollar.