The Currency Choice and its Relation to the Interest Rate
A eurobond is a financial aecet which is sold to investors in a number of countries. The value of such an asset must be expressed in terms of some standard. Possible standards are gold, a currency or a combination of a number of currencies, or an artificial ‘unit of account’. In most countries there are laws prohibiting ‘gold clauses’ in financial contracts, thus ruling out the possibility of denominating a bond in units of gold. Thus only the latter two alternatives can be used in practice. In the case of an artificial unit of account it is still necessary to use a domestic currency or currencies to make or receive payments, and thus the value of even an artificial unit must be related in some way to domestic currencies.
KeywordsInterest Rate Monetary Policy International Bond Domestic Currency Capital Movement
Unable to display preview. Download preview PDF.
- 1.N. Fieleke, ‘The Welfare Effects of Controls over Capital Exports from the United States’, in Essays in International Finance (Princeton University Press, Jan 1971).Google Scholar
- 2.H. Johnson, ‘Theoretical Problems of the International Monetary System’, Pakistan Development Review (1967).Google Scholar
- 3.For a full discussion of ‘two-tier markets’ see V. Baratteiti and G. Ragazzi, ‘An Analysis of the Two-Tier Foreign Exchange Market’, Banca Nazionale del Lavoro Quarterly Review (Dec 1971).Google Scholar