International debt
- often dollar-denominated
- Euro = denominated in foreign currency
- for example, if Mexico issues bonds in Japanese yen, this is a ``Euro-yen'' issue
- enforcement through vague incentives
- strongest economies generally issue in own currency
Phil Dybvig
|
When investing in international debt that is not denominated in your domestic currency, exchange rate risk is typically a larger source of volatility then interest rate risk. Default risk can be important for the pricing of these bonds, depending of course on the country's credit. |
|
|
One new development is that European countries are issuing debt denominated in the euro, which is Europe's new shared currency. |