What risks are incurred in making loans to borrowers based in foreign

 

Two risks involved in making loans to borrowers based in foreign countries are foreign exchange risk and sovereign risk. 
Foreign exchange risk is the risk that one currency will fall or rise against another. This includes erosion (inflation); the value of the funds lent to a borrower becomes worth less, which can also be called Purchasing Power Parity (Saunders & Cornett, 2008). Foreign exchange risk also includes Interest Rate Parity risk, which means “the hedged dollar return on foreign investments just equals the return on domestic investments” (Saunders & Cornett, 2008, p. 445). 
Sovereign risk is the risk that a foreign government may delay, or not allow a domestic company to pay their debts. When a countries economy weakens, a government can announce a debt moratoria, which is a delay in repaying interest and/or principle on debt” (Saunders & Cornett, 2008, p. 451). A government can also repudiate debt, which is an outright cancellation of all of a borrower’s current and future debt (Saunders & Cornett, 2008).

Tim

Reference

Saunders, A. & Cornett, M. (2008). Financial Institutions Management: A Risk Management
Approach. 7th Edition. McGraw-Hill-Irwin.

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

We value our customers and so we ensure that what we do is 100% original..
With us you are guaranteed of quality work done by our qualified experts.Your information and everything that you do with us is kept completely confidential.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

The Product ordered is guaranteed to be original. Orders are checked by the most advanced anti-plagiarism software in the market to assure that the Product is 100% original. The Company has a zero tolerance policy for plagiarism.

Read more

Free-revision policy

The Free Revision policy is a courtesy service that the Company provides to help ensure Customer’s total satisfaction with the completed Order. To receive free revision the Company requires that the Customer provide the request within fourteen (14) days from the first completion date and within a period of thirty (30) days for dissertations.

Read more

Privacy policy

The Company is committed to protect the privacy of the Customer and it will never resell or share any of Customer’s personal information, including credit card data, with any third party. All the online transactions are processed through the secure and reliable online payment systems.

Read more

Fair-cooperation guarantee

By placing an order with us, you agree to the service we provide. We will endear to do all that it takes to deliver a comprehensive paper as per your requirements. We also count on your cooperation to ensure that we deliver on this mandate.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency