Cross Border And Foreign Borrowing Essay - 2121 Words

Cross-Border Governmental Borrowing Cross-border government borrowing plays an integral role in the modern international finance system. Cross-border government borrowing enables governments to substantially increase their access to cheap credit and is a particularly attractive option to finance government programs. While raising taxes or cutting government expenditure can be politically treacherous, borrowing in the form of government-issued-bonds enables governments to fund programs and prompt growth, which is especially important in developing nations, while â€Å"smoothing over† the costs over a longer period of time in the future. And while governments may be able to issue and sell bonds to exclusively its domestic population, doing so is less desirable. For one, the limited amount of domestic creditors means the government will be forced to pay higher interest rates on their bonds. Secondly, issuing bonds to exclusively the domestic population is more contractionary tha n the alternative of selling bonds to the international community at large, as it takes money out of the money supply, which can slow economic growth. Therefore, in order to eschew some of the negative effects that comes with selling bonds exclusively to a domestic population, many governments are willing to engage in cross-border governmental borrowing. While there are some risks associated with cross-border government borrowing, to be certain, the opportunities that cross-border lending presents in termsShow MoreRelatedCross Border Government And The Modern International Finance System Essay2157 Words   |  9 PagesCross-border government borrowing plays an integral role in the modern international finance system. Cross-border government borrowing enables governments to substantially increase their access to cheap credit and can be a particularly attractive option to finance government programs. While raising taxes or cutting government expenditure can be politically treacherous , borrowing in the form of government-issued-bonds enables governments to fund programs and promote growth, which is especially importantRead MoreGlobal Liquidity Case Study1472 Words   |  6 Pagestherefore, have a direct impact on the domestic monetary conditions in these countries. There will, however, also be implications for countries that do not have an exchange rate anchor to the US currency via changes in cross-border bank lending and capital flows. Historically, cross-border bank lending played a significant role in providing global liquidity. Since the financial crisis, however, this activity has been scaled back significantly due to the need to maintain higher capital buffers and hasRead MoreSub Prime Mortgage Crisis : Overview3016 Words   |  13 Pagesinvestment and the investors then refused to buy the treasury bills. However with low interest rates, this would mean that the banks can all borrow more from the Federal Reserve at a lower rate. This makes borrowing money easy for banks. Banks wanted to generate more leverage which is to borrowing money at a lower rate and lending it to someone else at a higher rate to make money. This is a major way how banks earn money. As the banks borrowed more money at a lower rate and lend it out at a higherRead MorePros and Cons of Gaap and Ifrs Convergence787 Words   |  4 PagesInternational Financial Reporting Standards (IFRS).  Today, over 100 countries including Canada, India, and Japan have adopted these standards for financial reporting.  The growth of multinational companies such as Coca Cola and the increasing desire of cross-border investing have made it apparent that the U.S.accounting standards known as the Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB) can no longer remain separate from IFRS.  Under the requestRead MoreCurrency Hedging970 Words   |  4 Pagesfluctuations. One hedges the currency risk by contracting to sell foreign currency in the future, at the current exchange rate (Fries). If fund managers think the dollar is going to be stronger when they are ready to change the foreign currency back into American dollars, then they take out a foreign futures contract (a hedge). Thus, they lock in the exchange rate beforehand, so that they will not lose profits gained from holding devalued foreign currency (Hedging, 1999). If the manager guesses correctlyRead MorePost Brexit1421 Words   |  6 PagesGroup 2 Investment Bank – a large US Investment Bank has been based in London, and due to concerns over the regulatory framework post Brexit creating uncertainty is looking for a new location to setup within the Single Market so as to reduce any cross-border risk or political turmoil that may occur. This paper will review Frankfurt as a possible location, and considers the reasons for moving to this location and risks associated – political and economic at an international level. Frankfurt itself hasRead MoreMexican Devaluation Of The Mexican Peso Crisis Essay1412 Words   |  6 Pages There are several factors involving the Mexican government which led to the Mexican Peso Crisis. The argument has been whether sound monetary, fiscal and exchange rate policies could have prevented the crisis or foreign intervention was inviable to control the crisis because of the effect to the global community. The purpose of this paper is to show that it was the policies of the Mexican government that caused the devaluation of the peso and thus the ensuing Mexican Peso Crisis. The 1994 MexicanRead MoreThe International Industrial And Financial Business Structure1449 Words   |  6 Pagesdriven by global economic trade, globalisation can be defined by actions of development, investment, technological advancement and global communication. The ‘international industrial and financial business structure’ of globalisation has provided foreign economic opportunities of investment. 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Particularly, the globalization of financial markets is characterized by substantial cross-national flows of capital and the development of a large foreign exchange market. Every day around the world, banks and stockbrokers transfer vast amounts of money across country borders in the form of retirement funds, hedge funds, insurance, and similar investments. For instance, a German national is able to purchase Facebook stock which