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Principles of Finance: Unit 5, A Few Flavors of Foreign Bonds 6 Views


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Foreign bonds are attractive to some investors because they offer higher yields. Hopefully those investors are also attracted to higher risk.

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English Language

Transcript

00:00

principles of finance a la shmoop a few flavors of foreign bonds foreign

00:07

bonds like regular bonds only with haughty attitudes and difficult to [french bond near Louvre museum]

00:11

understand accents foreign bonds are attractive to some investors well

00:16

because often they offer higher yields but higher yields well usually means

00:20

higher risk or higher friction so got to know what you're getting into for

00:23

investing in these babes there are generally two types of foreign bond

00:27

markets developed markets like China and well like what Europe used to be an

00:33

emerging markets like risky markets and you know you're thinking Latin America

00:37

here and way at the bottom there's Somalia [pictures of Somalia]

00:40

sorry Somalia and just keeping it real your risky your emerging though the

00:43

developed market tends to be more developed you know the US Canada the

00:47

European Union China those countries are examples of developed markets safer less [world map]

00:52

yield emerging markets also known as developing markets used to include China

00:57

until then it went all capitalist on us and dominated the world today they

01:01

include places like well India Brazil and you know Argentina maybe other

01:06

emerging economies there and some people still put China as an emerging market

01:10

even though their economy is well probably larger than that of the US by

01:14

now why why would they put China is only emerging and not developed well trust

01:19

their government is an active partner of its investors and changes laws to highly [china shaking hands]

01:24

favored local Chinese investors over anyone else in the world

01:28

that's versus the American style where well the government tries to be fair to

01:32

everyone regardless of where they come from even if it hurts US interests Brady

01:36

bonds are a type of foreign bond issued by emerging market governments commonly [writing on white board]

01:41

in Latin American countries they were created in 1989 to help less developed

01:45

countries on defaulted commercial bank loans it's common for the pledged

01:48

collateral underlying Brady bonds to be US Treasury zero coupon bonds which may

01:53

explain why they're considered more liquid than debt issued from other

01:57

emerging markets and liquidity matters a lot because when you want to get out of [piles of money]

02:01

those Argentinian bonds because you're smelling the whiff of 30% of your

02:05

inflation well you need liquidity because some

02:08

you're the only one selling so suppose you're inundated with fear loathing and

02:11

well more fear when it comes to the bond markets all kinds of bad things can

02:15

happen to good and bad people along the long and winding Bond Road but most of [Dorthy sees witches feet under house]

02:20

our focus thus far has been on simple domestic bonds backed by companies

02:25

you've actually heard of under laws which well exist so with all that edge

02:30

now throw in the notion that the bonds you're buying aren't from your

02:34

neighborhood they're from our eye well we'll throw in China they're Russia [world map]

02:37

Brazil Africa and the laws there don't function the same way they do in the US

02:42

that is investor rights are well kind of a moving target at best like investors [deer seen through a rifle sight]

02:47

don't have natural rights so why would you ever invest in non-us securities

02:52

well greed or higher interest rates or higher returns if you can buy a bond

02:58

that ends up returning to you 11 percent a year for a decade instead of the five

03:03

percent you get domestically and then it pays off its full principle well that's

03:07

a big fat win right well yes if it actually happens and that's a big fat if

03:12

so just remember the big three types of markets here developed emerging and

03:17

grocery

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