what are the reasons why a multinational corporation might decide to borrow in a
ID: 2753396 • Letter: W
Question
what are the reasons why a multinational corporation might decide to borrow in a country such as Brazil, where interest rates are high, rather than in a country like Switzerland, where interest rates are low. Provide support for your rationale.
*select two (2) potential international markets in which TFC may wish to do business. Compare the currency markets of the two (2) countries you have chosen with that of the U.S. dollar. Based on currency considerations only, recommend whether or not TFC should expand to the international markets that you have chosen.
Explanation / Answer
Answer: A risky borrower usually has to pay more interest to convince someone to lend to him or her. For example: If you borrow from a friend with a promise to wash their car but repay late and don’t wash their car like you promised, then probably the next time you’ll have to promise what you originally promised plus more to convince that friend to lend to you again.
In organized markets, the age of the borrower, whether or not the borrower has a steady job, and whether or not the borrower has a history of paying bills on time all factor into the interest rate a lender offers. A few agencies collect these data for individuals and provide summaries, called credit ratings. The riskier a borrower is, the lower his credit rating will be, and the higher the interest rate he or she may have to pay to borrow in organized bond markets (Landsburg, 2007).
This same concept of course would apply to any business or any country for that matter. Things like terms of the loan and securing the money fast if needed would attract some countries to borrow from a country from Brazil with higher interest rates.
Landsburg, Lauren. (2007). Bonds, Borrowing, and Lending, Economics by Topic Retrieved from http://www.econlib.org/library/Topics/Details/bonds.html
Answer: The two countries that I chose for TFC to consider are Great Britain and Japan. Both economies are very strong and established countries. Great Britain’s currency is the Pound and Japan’s currency is the Yen. Currently, the Pound is 0.6615 to the Dollar, and the Japanese Yen is 120.89 to the Dollar. Japan has a lower rate of inflation compared to Great Britain. Both Great Britain and Japan also have solid Bond Ratings, Great Britain a little better than Japan, although if you consider Hong Kong, they do have an AAA. I would say that expanding in either market based on currency exchanges and the stability of the country’s economy either would be ok to expand into. British Pound and Japanese Yen are in the Top ten rates on the currency dollar rates table.
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