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

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

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understand accents foreign bonds are attractive to some investors well

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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favored local Chinese investors over anyone else in the world

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

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

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

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

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

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

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

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

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

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inflation well you need liquidity because some

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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grocery

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