Definition
A Global Bond has two primary definitions in the world of finance:
- Temporary Issuance: A global bond represents a single bond for the total amount of a new issue of bonds, temporarily issued to a bank, commonly known as a paying agent, responsible for distributing the actual bonds to investors. This bond is referred to as a global bearer bond and is later exchanged for the actual bonds.
- International Trading: It also describes a bond that is traded across multiple different markets worldwide, offering widespread availability and liquidity.
Examples
- Sovereign Bonds: Government-issued bonds available in multiple international markets.
- Corporate Global Bonds: Bonds issued by multinational corporations and traded on various international exchanges, allowing investors from different regions to participate.
Frequently Asked Questions
What is the purpose of issuing a global bond?
Global bonds are issued to raise large sums of capital from a diversified pool of investors spread across different markets. This method can help reduce funding costs and expand the investor base.
What are the benefits of global bonds to investors?
Investors benefit from global bonds’ high liquidity, diversification as they are tradable in multiple markets, and potentially lower risk due to geographic spread.
How does a global bond differ from a traditional bond?
Unlike traditional bonds, which might be limited to a single national market, global bonds are designed for trading in multiple international markets, enhancing their liquidity and investment appeal.
What is a paying agent?
A paying agent is a financial institution responsible for disbursing interest payments and principal repayments to the bondholders.
Why might a company or government prefer global bonds over domestic bonds?
Issuing global bonds allows access to a broader investor base, potentially leading to better pricing and enhanced liquidity.
Related Terms with Definitions
- Eurobond: A bond issued in a currency not native to the country where it is issued.
- Bearer Bond: A type of bond not registered in the owner’s name, where possession of the bond implies ownership.
- Fixed Income Security: A type of investment that returns regular income payments, such as interest or dividends.
Online References
Suggested Books for Further Study
- “The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeroes, Bond Funds, Money Market Funds, and More” by Annette Thau
- “Fixed Income Analysis” by Barbara S. Petitt and Jerald E. Pinto
- “Investing in Bonds for Dummies” by Russell Wild
Accounting Basics: “Global Bond” Fundamentals Quiz
### What is a primary characteristic of a global bond?
- [ ] It is only traded within the issuing country.
- [x] It is traded in multiple international markets.
- [ ] It represents equity ownership in a company.
- [ ] It is solely issued by developing nations.
> **Explanation:** A defining feature of global bonds is that they are traded across various international markets, enhancing their liquidity and investment scope.
### What institution is typically responsible for issuing the temporary global bond?
- [x] The paying agent
- [ ] The issuing corporation
- [ ] A central bank
- [ ] An investment authority
> **Explanation:** The paying agent, commonly a bank, temporarily handles the issuance of the global bond before distributing the actual bonds to investors.
### What is another term commonly used for a global bond in its initial format?
- [ ] Registered Bond
- [ ] Convertible Bond
- [x] Global Bearer Bond
- [ ] Secured Bond
> **Explanation:** In its initial issuance, a global bond is often referred to as a global bearer bond before being exchanged for the actual bonds.
### What are the advantages of a global bond for investors?
- [ ] Limited liquidity
- [x] High liquidity and diversification
- [ ] Tax exemptions
- [ ] High default risk
> **Explanation:** Global bonds offer high liquidity and diversification benefits as they are traded in multiple international markets.
### Who benefits from the diversified investor base global bonds provide?
- [ ] Credit rating agencies
- [x] Issuing entities like corporations and governments
- [ ] Independent investors exclusively
- [ ] Regulatory bodies
> **Explanation:** Issuing entities, including corporations and governments, benefit from a broader and more diversified investor base, which can reduce funding costs and risks.
### What kind of interest payment process do global bonds typically use?
- [ ] Irregular and sporadic
- [ ] Only upon maturity
- [x] Regular disbursement through a paying agent
- [ ] Based on commodity prices
> **Explanation:** Interest payments for global bonds are regularly disbursed to bondholders through a paying agent, ensuring scheduled returns.
### Are global bonds more likely to have high or low liquidity?
- [x] High liquidity
- [ ] Low liquidity
- [ ] No liquidity
- [ ] Variable liquidity based on market
> **Explanation:** Global bonds are specifically designed to be highly liquid, given their trading in multiple markets.
### What distinguishes global bonds from eurobonds?
- [ ] Global bonds are traded in only one country.
- [x] Global bonds are traded in multiple markets, while eurobonds are issued in a currency not native to the issuing country.
- [ ] Eurobonds have higher interest rates.
- [ ] Global bonds are only government-issued.
> **Explanation:** While global bonds are traded in multiple markets, eurobonds are distinct for being issued in a currency different from the issuer's domestic currency.
### When are global bonds typically exchanged for the actual bonds to investors?
- [ ] Immediately upon issuance
- [ ] Quarterly
- [ ] Annually
- [x] In due course, after initial issuance
> **Explanation:** Initially issued as global bearer bonds, they are exchanged for actual bonds to investors in due course, as managed by the paying agent.
### Why might global bonds be preferred by multinational corporations?
- [x] To reach a broad and diversified investor base
- [ ] To limit investment to local investors
- [ ] To avoid international regulations
- [ ] To minimize market visibility
> **Explanation:** Multinational corporations may prefer global bonds to access a wide-reaching and diversified investor base, potentially improving funding terms.
Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!
