Question

what are some of the the additional risks of foreign bond ownership?

Answer 1

The additional risks are:

1) Exchange rate risk:

The payments of interest and repayment of principal would be in foreign currency, which the investor has to covert into his home currency. This is subject to the risk that the exchange rate goes agianst his interest. This happens when the foreign currency depreciates resulting in lower amount of domestic currency on conversion.

2) Non-enforceability of claims on the bond:

It is difficult to enforce claims arising out of the foreign bond, as they are issued elsewhere and are subject, usually, to the jurisdiction of the courts in that country.

3) Political risk:

Political instability in the country of issue can affect the realization of claims. Unfavorable bilateral relations, war related issues, etc., can also affect the claims.