Final answer:
Both borrowers and investors should seriously consider the risks involved in dual-currency bonds, such as currency fluctuation, interest rate changes, and overall economic conditions. They should also consider whether the rate of return and liquidity align with their investment strategies. Understanding these factors is crucial in making an informed decision about issuing or investing in dual-currency bonds.
Step-by-step explanation:
When looking into issuing or investing in dual-currency bonds, there are several key considerations that a borrower and an investor must take into account related to the pros and cons, and risk and return of the bond. Dual-currency bonds are a type of corporate bond where the principal and interest payments may be made in different currencies, which adds a layer of complexity to the traditional bond model.
Risks include currency fluctuation, which can highly affect the return on investment. If the currency in which repayment is made depreciates against the investor's home currency, there could be a significant loss. Additionally, changes in interest rates and economic conditions can affect the bond's value. As for returns, these bonds can offer attractive yields, particularly if the investor can benefit from favourable currency exchange rates.
Before making decisions, both borrowers and investors should reflect on their willingness to take on these risks and whether the potential rate of return compensates for the additional risk. Bonds offer compensation for delaying consumption, an adjustment for inflation, and a risk premium reflecting the borrower's creditworthiness. Liquidity can also be a concern, as investors may need to sell the bond before maturity to access their cash, which can be challenging depending on the bond's demand.