Foreign Currency Bonds: Benefits, Risks and How They Work

Companies, banks and governments may issue bonds in foreign currencies when those currencies appear more stable and predictable than their local currency. This can also help them attract investors and raise capital from international markets. However, foreign-currency borrowing carries exchange-rate risk. Governments cannot reduce the real value of such debt by inflating their domestic currency, and a weaker local currency can make repayment more expensive. Businesses may use the proceeds to expand into overseas markets or convert the funds for local operations using foreign-exchange hedges. Examples include samurai bonds, which are yen-denominated bonds issued in Japan by foreign entities and governed by Japanese law.

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