Listen to a Business English Dialogue About Dollar bond
Lillian: Hi Douglas, have you heard about dollar bonds in finance? I’ve come across the term, but I’m not entirely sure what it means.
Douglas: Hey Lillian, dollar bonds are bonds issued by non-U.S. entities but denominated in U.S. dollars. They allow foreign issuers to access the U.S. capital markets and attract investors seeking exposure to U.S. currency without the need for currency exchange.
Lillian: Oh, I see. How do dollar bonds benefit issuers and investors?
Douglas: Dollar bonds benefit issuers by providing access to a larger pool of investors and potentially lower borrowing costs compared to issuing bonds in their domestic currency. For investors, dollar bonds offer diversification opportunities and exposure to U.S. dollar-denominated assets, which can serve as a hedge against currency risk.
Lillian: That makes sense. Can you give me an example of when a company might issue dollar bonds?
Douglas: Sure, Lillian. A multinational corporation based in Europe might issue dollar bonds to finance its expansion projects in the United States or to refinance existing debt denominated in U.S. dollars. By tapping into the U.S. bond market, the company can benefit from favorable interest rates and broaden its investor base.
Lillian: Got it. How do investors assess the credit risk associated with dollar bonds?
Douglas: Investors assess the credit risk associated with dollar bonds by analyzing factors such as the issuer’s credit rating, financial performance, industry outlook, and macroeconomic conditions. They may also consider geopolitical risks, currency fluctuations, and the issuer’s track record of meeting debt obligations before investing in dollar bonds.
Lillian: Thanks for explaining, Douglas. It’s helpful to understand how dollar bonds work and their implications for issuers and investors.
Douglas: You’re welcome, Lillian. Dollar bonds play a significant role in global capital markets, providing opportunities for issuers to raise capital and investors to diversify their portfolios. If you have any more questions, feel free to ask!