Final answer:
Eurodollar bonds, which are U.S. dollar-denominated deposits held in foreign banks or foreign branches of American banks, are not subject to U.S. tax, making the statement false. They are distinct from U.S. Treasury bonds, which are subject to U.S. taxes for U.S. investors but may be tax-exempt for foreign investors under tax treaties.
Step-by-step explanation:
Eurodollar bonds are essentially U.S. dollar-denominated deposits held in foreign banks or in the foreign branches of American banks. They are so named because they were initially held mostly in European banks. The statement that Eurodollar bonds are subject to U.S. tax is false. One of the key attractions of Eurodollar bonds for investors is that they are typically exempt from U.S. taxes, making them a popular investment vehicle.
It's important to differentiate between Eurodollar bonds and U.S. Treasury bonds. While U.S. Treasury bonds are considered a safe and stable investment globally, with strong demand evidenced by consistent purchases from foreign investors such as global sovereign funds, they are subject to U.S. taxation for U.S. investors. However, the interest on U.S. Treasury bonds held by foreign investors may be tax-exempt in the U.S. under certain tax treaties, although the foreign investors may have to pay taxes in their own jurisdiction.