The second major sector of the unregulated capital market is the Eurobond market. The Eurobond market is characterised by direct transaction between borrowers and lenders, although the large banks playa major role in underwriting and placing the bonds. The market permits lenders to lend directly to borrowers across national borders, without the intermediation of a bank. Bank can, however, plays a major role in arranging the transaction. Eurobonds differ from foreign bonds in that the latter are issued in one country in its currency by a foreign borrower. By contrast, the Eurobond is issued in one currency such US $, the yen, the pound, the mark or the Swiss franc for sale in many capital markets with the sale managed by an international syndicate of bank Underwriters.
The borrowers or issuers of the bonds include public sector organisations and commercial banks, established bluechip companies. The lenders or purchasers of the bond securities are individual and institutional investors, with the latter group dominating. A secondary market for Eurobonds has grown rapidly as these financial institutions continuously seek to adjust
their portfolios, and as a result the original lenders are not committed to a borrower until the final maturity of the bond issue.
Generally, purchasers buy Eurobonds in currencies other than their own, and a major attraction of these bonds for individuals is that in most currencies they are exempt from withholding taxes. Further more, the unregulated nature of the market means that its costs are lower and its issuing process is much faster domestic or foreign bond counter parts. These bonds market provide a wide variety of medium to funds of 3 to 15 years maturity. Fixed coupons or interest rates are common but floating rate notes are also important.
Features of Eurobonds Issue:
The distinctive features of Eurobonds issues are as follows:
• The issue of Eurobonds is in the form ‘ placing’ rather than formal issuing, to avoid national regulations on new issues .
• Eurobonds are placed simultaneously in many countries through multinational syndicates of underwriting banks who sell them to an investment clientele throughout the world.