564 CHAPTER 15 Multinational Financial Management
bond. Furthermore, because it is denominated in dollars and sold in the United States
under SEC regulations, it is also called a Yankee bond. In contrast, if Northern Tel-
com issued bonds in Mexico denominated in pesos, it would be a foreign bond, but not
a Yankee bond.
The term Eurobondis used to designate any bond issued in one country but de-
nominated in the currency of some other country. Examples include a Ford Motor
Company issue denominated in dollars and sold in Germany, or a British firm’s sale of
euro-denominated bonds in Switzerland. The institutional arrangements by which
Eurobonds are marketed are different than those for most other bond issues, with the
most important distinction being a far lower level of required disclosure than is usually
found for bonds issued in domestic markets, particularly in the United States. Gov-
ernments tend to be less strict when regulating securities denominated in foreign cur-
rencies, because the bonds’ purchasers are generally more “sophisticated.” The lower
disclosure requirements result in lower total transaction costs for Eurobonds.
Eurobonds appeal to investors for several reasons. Generally, they are issued in
bearer form rather than as registered bonds, so the names and nationalities of in-
vestors are not recorded. Individuals who desire anonymity, whether for privacy rea-
sons or for tax avoidance, like Eurobonds. Similarly, most governments do not with-
hold taxes on interest payments associated with Eurobonds. If the investor requires an
effective yield of 10 percent, a Eurobond that is exempt from tax withholding would
need a coupon rate of 10 percent. Another type of bond—for instance, a domestic is-
sue subject to a 30 percent withholding tax on interest paid to foreigners—would need
a coupon rate of 14.3 percent to yield an after-withholding rate of 10 percent. In-
vestors who desire secrecy would not want to file for a refund of the tax, so they would
prefer to hold the Eurobond.
More than half of all Eurobonds are denominated in dollars. Bonds in Japanese
yen, German marks, and Dutch guilders account for most of the rest. Although cen-
tered in Europe, Eurobonds are truly international. Their underwriting syndicates in-
clude investment bankers from all parts of the world, and the bonds are sold to in-
vestors not only in Europe but also in such faraway places as Bahrain and Singapore.
Up to a few years ago, Eurobonds were issued solely by multinational firms, by inter-
national financial institutions, or by national governments. Today, however, the Eu-
robond market is also being tapped by purely domestic U.S. firms, because they often
find that by borrowing overseas they can lower their debt costs.
International Stock Markets
New issues of stock are sold in international markets for a variety of reasons. For ex-
ample, a non-U.S. firm might sell an equity issue in the United States because it can
tap a much larger source of capital than in its home country. Also, a U.S. firm might
tap a foreign market because it wants to create an equity market presence to accom-
pany its operations in that country. Large multinational companies also occasionally
issue new stock simultaneously in multiple countries. For example, Alcan Aluminum,
a Canadian company, recently issued new stock in Canada, Europe, and the United
States simultaneously, using different underwriting syndicates in each market.
In addition to new issues, outstanding stocks of large multinational companies are
increasingly being listed on multiple international exchanges. For example, Coca-
Cola’s stock is traded on six stock exchanges in the United States, four stock exchanges
in Switzerland, and the Frankfurt stock exchange in Germany. Some 500 foreign
stocks are listed in the United States—an example here is Royal Dutch Petroleum,
which is listed on the NYSE. U.S. investors can also invest in foreign companies
through American Depository Receipts (ADRs),which are certificates representing own-
ership of foreign stock held in trust. About 1,700 ADRs are now available in the
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