Reference no: EM13294642

Some influences in international bond valuation are yields and inflation; they vary among different countries. "Governments are perceived to be risk free, but the value of their bonds changes over time in response to changes in their risk free interest rate, and perceived credit risk of the bond" (Madura, 2013, p.190). If investors deem an international bond to be risky, they will expect a higher return and vice versa. Another factor that affects the return on a country's bonds is the exchange rate risk, or changes in the value of the foreign currency (Madura, 2013). The article I chose is about Greece and how they are seeking to borrow 500 million Euros for three years at an interest rate of between 3.5% and 3.625% (Edwards, 2014). This economy has seen tough times but may be on the rise (a rising angel) and could make a good investment; although some may beg to differ. This article is important in understanding diversification benefits that international bonds provide because there was a time when Greece was not doing so well, and if one was solely invested there, they would have lost almost everything. Greece is still not up to par but they are seeing some light. This means that when one country is not doing so well, another may be doing very well, which may warrant moving investments to this country. Or possibly in Greece's case today, one may be able to profit from the strengthening of their economy.