Definition
The term Arirang bond refers to an indenture issued in South Korea, in Korean won, by a foreign bank or corporation. Arirang bonds are issued when a corporation wishes to raise capital from investors located in South Korea.
Explanation
Foreign corporations that wish to raise funds in South Korea have the option of issuing what are known as Arirang bonds. These bonds are sold by non-domestic entities, including corporations, financial institutions and governments, and are issued in South Korean won. This is typically done when the interest rates in South Korea are low relative to the foreign corporation's domestic rates, which lowers their interest expense.
Since the bond is issued in South Korea's domestic currency, investors located in South Korea are also insulated from currency exchange rate risk. Foreign companies will usually issue these securities if they have plans to establish operations in South Korea. These bonds are also attractive to investors wishing to geographically diversify their portfolios.
Arirang refers to a popular Korean folk song. It is thought to be the unofficial national anthem of South Korea.
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