Examples of foreign debt in the following topics:
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- To deal with foreign currency and bad debts, we have a "gain or loss" account and methods to measure the net value of accounts receivable.
- A foreign currency transaction requires settlement in a currency other than the functional currency.
- The allowance for bad debt/doubtful accounts is a permanent account.
- The change in the bad debt provision from year to year is posted to the bad debt expense account in the income statement .
- Explain how the "gain or loss" account is used for foreign currency transactions and bad debts
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- Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).
- Sovereign debt usually refers to government debt that has been issued in a foreign currency.
- Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
- Investors in sovereign bonds denominated in foreign currency have the additional risk that the issuer may be unable to obtain foreign currency to redeem the bonds.
- Usually small states with volatile economies have most of their national debt in foreign currency.
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- Government debt is the debt owed by a central government.
- Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).
- Sovereign debt usually refers to government debt that has been issued in a foreign currency.
- Otherwise the debt issuance can increase the level of (i) public debt, (ii) private sector net worth, (iii) debt service (interest payments) and (iv) interest rates.
- Debt held by the public includes Treasury securities held by investors outside the federal government, including that held by individuals, corporations, the Federal Reserve System and foreign, state and local governments.
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- The states and Congress both incurred large debts during the Revolutionary War, and the federal government assumed these debts when some states failed to settle them.
- Congress was also denied the power to regulate either foreign trade or interstate commerce.
- Congress' inability to encourage commerce and economic development—or to redeem the public obligations (debts) incurred during the war—significantly hindered its power.
- Alexander Hamilton was particularly vocal in arguing that a strong central government was necessary to levy taxes, pay back foreign debts, regulate trade, and generally strengthen the United States.
- His recommended changes included granting Congress power over foreign and domestic commerce and providing means for it to collect money from state treasuries.
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- Countries have developed at an uneven rate because wealthy countries have exploited poor countries in the past and continue to do so today through foreign debt and foreign trade.
- Today, poor countries are trapped by large debts which prevent them from developing.
- African countries have paid back $550 billion of their debt but they still owe $295 billion.
- Widespread malnutrition is one of the effects of this foreign dependency.
- Through unequal economic relations with wealthy countries in the form of continued debts and foreign trade, poor countries continue to be dependent and unable to tap into their full potential for development.
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- Firms investing in foreign markets are exposed to a risk associated with that country.
- Consequently, the value of foreign investment and foreign assets could plummet in value as international investors and businesses flee the country.
- Furthermore, a government could weaken property rights or impose new taxes on foreign businesses.
- Investors earn smaller interest rates for projects and investments in a foreign country with a higher letter credit grade.
- Debt Management (DM) indicates a country's ability to repay a debt and includes money growth, trade balance, foreign and domestic debt, and a government's budget deficit.
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- However, central banks may buy government bonds in order to finance government spending, thereby monetizing the debt .
- Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
- Investors in sovereign bonds denominated in foreign currency have the additional risk that the issuer may be unable to obtain foreign currency to redeem the bonds.
- For example, in the 2010 Greek debt crisis the debt was held by Greece in Euros.
- However, other risks still exist, such as currency risk for foreign investors (for example non-U.S. investors of U.S.
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- A international business chooses sources of funding based on its capital structure to find the best debt-to-equity ratio that maximizes its value.
- In theory, debt financing generally offers the lowest cost of capital due to its tax deductibility.
- However, it is rarely the optimal structure since a company's risk generally increases as debt increases.
- Export-Import Banks provide two types of loans: direct loans to foreign buyers of exports, and intermediary loans to responsible parties, such as foreign government-lending agencies which relend to foreign buyers of capital goods and related services (for example, a maintenance contract for a jet passenger plane).
- These are an important source of capital for multinational companies and foreign governments.
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- The Confederation's weakest points centered around finance, debt, and taxation.
- Congress had also been denied the power to regulate either foreign trade or interstate commerce and, as a result, all of the states maintained control over their own trade policies.
- The states and the Confederation Congress both incurred large debts during the Revolutionary War, and how to repay those debts became a major issue of debate (some states paid off their war debts and others did not).
- During the deliberations of the Constitutional Convention, federal assumption of the states' war debts became a major issue.
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- Treasury issues too much debt, then the interest rate increases.
- It attracts foreign investors.
- A weak dollar means $1 can purchase fewer foreign currencies, while a strong dollar means $1 can buy more foreign currencies.
- Strong dollar makes foreign products cheaper, and U.S. products become more expensive.
- As the Federal Reserve buys or sells foreign currencies, the Fed's assets and liabilities change.