Dragon Bond

Dragon Bond Foreign Bond Asian Bond Markets Investing Fixed Income Securities Financial Instruments
Dragon bonds are foreign bonds issued in the Asian bond markets, designed to tap into the growing pool of Asian investors.
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What is a Dragon Bond?

A Dragon Bond is a type of foreign bond that is issued in the Asian bond markets, excluding Japan. These bonds are commonly issued by non-Asian entities, expressed in an Asian currency, such as the Hong Kong dollar, Singapore dollar, or even “hard” currencies such as USD. They aim to attract investments from the increasingly wealthy and liquid Asian investor base.

Key Characteristics

  • Issuer: Typically non-Asian corporations, financial institutions, or governments.
  • Market: Issued and traded primarily in Asian financial centers excluding Japan.
  • Currency: Can be denominated in Asian currencies or major global currencies.
  • Purpose: Allows issuers to diversify their investor base and raise capital from Asian markets.

Examples of Dragon Bonds

  1. ABC Corporation issues a Dragon Bond denominated in USD, targeting investors primarily in Hong Kong and Singapore.
  2. XYZ Bank issues a Dragon Bond in Singapore dollars (SGD) to raise funds for expansion into the Asian market.
  3. Western Government issues a Dragon Bond in Hong Kong dollars (HKD) to attract liquidity from Asian financial centers.

Frequently Asked Questions

  1. Why would a company issue a Dragon Bond instead of a traditional bond?

    • Issuing a Dragon Bond allows companies to access the Asian investor market, which is often cash-rich and eager for diverse investment opportunities.

  2. How do Dragon Bonds differ from Samurai Bonds?

    • While Dragon Bonds are issued in the Asian markets excluding Japan, Samurai Bonds are issued in Japan by foreign entities.

  3. Are Dragon Bonds riskier than other types of bonds?

    • The risk can vary depending on the issuer’s creditworthiness and the currency denomination of the bond.

  4. What benefits do investors gain from investing in Dragon Bonds?

    • Investors can gain exposure to non-Asian credits while investing in their local or familiar currencies.

  5. Can Dragon Bonds be issued in any Asian currency?

    • They are typically issued in highly liquid and stable currencies available in Asian financial markets, like the Hong Kong dollar or Singapore dollar.
  • Foreign Bond: A bond issued in a domestic market by a foreign entity, using the local market’s currency.
  • Samurai Bond: A yen-denominated bond issued in Japan by a non-Japanese entity.
  • Dim Sum Bond: A bond issued outside of China but denominated in Chinese Renminbi (RMB).
  • Yankee Bond: A bond issued in the United States by a foreign entity, denominated in U.S. dollars.

Online References

Suggested Books for Further Studies

  1. “The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More” by Annette Thau
  2. “Bond Markets, Analysis, and Strategies” by Frank J. Fabozzi
  3. “The Complete Guide to Investing in Bonds and Bond Funds: How to Earn High Rates of Return Safely” by Martha Maeda

Accounting Basics: “Dragon Bond” Fundamentals Quiz

### Dragon Bonds are typically issued in which markets? - [ ] Japanese Bond Markets - [x] Asian Bond Markets (excluding Japan) - [ ] European Bond Markets - [ ] South American Bond Markets > **Explanation:** Dragon Bonds are foreign bonds issued specifically in the Asian bond markets excluding Japan, targeting Asian investors. ### Which type of entity usually issues Dragon Bonds? - [x] Non-Asian entities - [ ] Asian entities - [ ] Only government institutions - [ ] Only corporate entities > **Explanation:** Dragon Bonds are often issued by non-Asian entities that are looking to tap into the Asian investor base. Both corporate and government entities can issue these bonds. ### Which of the following currencies is NOT typically used for Dragon Bonds? - [ ] Hong Kong Dollar - [ ] Singapore Dollar - [ ] US Dollar - [x] Japanese Yen > **Explanation:** Dragon Bonds are typically not denominated in Japanese Yen as they are issued in Asian markets excluding Japan. ### One advantage of issuing Dragon Bonds is: - [ ] Higher interest rates in the Asian markets - [x] Access to a diverse and liquid investor base in Asia - [ ] Tax advantages in the issuer's home country - [ ] Guaranteed returns for investors > **Explanation:** Issuing Dragon Bonds allows companies to access the diverse and often cash-rich investor base present in Asian financial markets. ### Dragon Bonds can be issued in: - [ ] Only Asian local currencies - [x] Both Asian local currencies and global currencies - [ ] Only the issuing company’s home currency - [ ] Only the US Dollar > **Explanation:** Dragon Bonds can be denominated in prominent Asian local currencies like HKD or SGD, as well as global currencies such as USD. ### What differentiates Dragon Bonds from Samurai Bonds? - [ ] Issuer origin - [ ] Currency denomination - [x] The market in which they are issued - [ ] They are the same > **Explanation:** The primary difference lies in the market of issuance. Dragon Bonds are issued in Asian markets excluding Japan, whereas Samurai Bonds are issued in Japan. ### Which investor base do Dragon Bonds primarily target? - [x] Asian investors - [ ] American investors - [ ] European investors - [ ] Australian investors > **Explanation:** Dragon Bonds are designed to attract Asian investors by issuing in Asian financial markets. ### What factor may affect the risk level of Dragon Bonds? - [ ] The presence of a tax deferral - [ ] The issuer's headquarters location - [x] The creditworthiness of the issuer - [ ] The geographic Scattering of investors > **Explanation:** The risk of Dragon Bonds can be significantly influenced by the creditworthiness of the non-Asian issuer. ### Dragon Bonds are uniquely positioned because they: - [ ] Require local government guarantees - [ ] Have low-interest rates - [ ] Are issued by Asian entities - [x] Enable market diversification for issuers > **Explanation:** Dragon Bonds enable non-Asian issuers to diversify their funding sources by accessing financial markets in Asia. ### What is a potential currency for a Dragon Bond issuance? - [x] Singapore Dollar (SGD) - [ ] Chinese Yuan (non-offshore) - [ ] Swiss Franc - [ ] Brazilian Real > **Explanation:** Dragon Bonds can be issued in stable and widely accepted Asian currencies, such as the Singapore Dollar.

Thank you for expanding your accounting and financial knowledge with our comprehensive look into Dragon Bonds and for engaging with our challenging sample quiz. Keep pursuing excellence in your financial understanding!

Tuesday, August 6, 2024
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