Investment in Brazil rather than Switzerland
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Determine the 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.
The rate of swelling in the nations outside will have a significant impact on the future cost abroad and at home. Borrowing at high-interest rates is a guarantee that productivity will be stable in the future. For example, when the outside countries make adjustments relative to expansion rates, it will not adversely affect reimbursement of obligations by the multinational enterprise. The low cost of a loan is not a preference because of the effects of misfortunes that arise from cash appreciation (Lunsford, 2017).
The rates of trade between residential money and outside coinage, in situations where the finances outside will deteriorate against residential coin, the cash will appreciate. The rebound in oil led to corporate confidence where the investors recognize there are opportunities in the Brazilian assets. The loan fees provide critical explanations for why multinational corporations choose to borrow at high-interest rates even when the financing costs are high. The high rates of interest make an investment in assets that trade in dollars more attractive because there is a lot of capital flooding out of countries in emerging risky markets. When the dollar gain against other currencies, the business will experience an appreciable impact. The multinational corporations gain when there is a difference between their lending rates and the interest they pay when borrowing. That also applies to banks that obtain loans from savers in the form of deposits; they lend that money at a higher interest rate, pay the savers low interest on their savings, and profit from the spread (Kei & Zhang, 2017).
The measures to control the rate of inflation by the central bank in Brazil make the currency to be stable, thereby raising the frequency of lending. There are many equity investors in Brazil, where the returns on paper money dominate the market. The investors willing to increase their allocations internationally have some opportunities in Brazil, where it is more profitable to invest in cash instead of equity (Crotty & Kelly, 2014).