Masala Bonds are again in news these days, with a strong Government at centre masala bonds can gain momentum, So what are these Masala Bonds ???
Masala Bonds are bonds issued outside India but denominated in Indian Rupees or we can say that these bonds are Rupee denominated borrowings by Indian entities in Overseas markets. These are issued to foreign investors and settled in US $. Hence the currency risk lies with the investor and not the issuer.
For example :-
A Co. Ltd issued Masala Bonds in the offshore market of value Rs 1000 (denominated in Rs)
Rate of exchange on date of issue is 1 $= 70 Rs.
So issue in terms of $ will be 15 $.
Now if on redemption Rate of exchange is 1 $ = 80 Rs. Investor will now get only 13 $ for 1000 Rs Bonds on maturity.
On the other hand issuer will not be affected since it will issue bond of 1000 Rs and will redeem also 1000 Rs.
So what's your view on Masala Bonds????
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