Foreign vs Local Currency Bonds Explained Simply | CFA Level I

So, here I am uh living in the United States and I'm an investor and I want to buy um I want to buy an Iceland government bond. Well, I have two choices. I could buy an Iceland government bond that was issued in Iceland in its uh domestic currency, the krona. What I would have to do is I would have to go to the foreign exchange market, take my dollars, convert them into kronas, and then go to some exchange over there or probably an over-the-counter market over there and and buy those bonds. Or, Iceland could have come to New York and issued a bond in US dollars and I could buy that bond in US dollars. So, those are the two separate those are the two distinct types of bond issues and they carry unique kinds of risk. Now, before we get into the details, I mean, clearly, why would I, a US investor, buy an Icelandic government bond? Well, I would buy it because I think its economy is going to expand. I I buy it because I think they have lots and lots of diversification. I think they have good trade surplus. I think they have foreign currency reserves and I like their political and legal system, stability and sustainability. All right. Now, [clears throat] what are some other factors and these are probably even better exam questions. All right. So, foreign currency debt. What this simply means is that Iceland goes ahead and comes to New York, issues a bond in US dollars. So, what depends then on Iceland's ability to repay that debt is, of course, dependent on the exchange rate between the US dollar and the Icelandic krona.