Reference no: EM131526310

From the e-Activity, determine key 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.

A high-risk borrower will usually have a higher interest rate. This is required to make the lenders feel more comfortable with lending. They charge you more because they do not trust you. Some factors that make someone a high risk borrower are: 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 of these factors determine the interest rate a lender offers. Credit ratings summarize these factors for lenders. 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 however, it is opposite. Interest rates are higher in Brazil because the loans are more flexible. 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. Lower interest rates in Switzerland are to attract more borrowers but loans are not as flexible.

Landsburg, Lauren. (2007). Bonds, Borrowing, and Lending, Economics by Topic Retrieved from https://www.econlib.org/library/Topics/Details/bonds.html

From the scenario, 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.

The two countries that I chose for TFC to consider are Great Britain and Japan. Both countries are established and economies are very strong. Great Britain's currency is the Pound and Japan's currency is the Yen. Currently, the Pound is 1.53 to the Dollar, and the Japanese Yen is 0.0084 to the Dollar. Japan has a lower rate of inflation compared to Great Britain. Both Great Britain and Japan also have solid Bond Ratings. I would say that expanding in either market based on currency exchanges and the stability of the country's economy either would be good.