662PART ELEVENTHE MACROECONOMICS OF OPEN ECONOMIES◆The perceived economic and political risks of holding assets abroad◆The government policies that affect foreign ownership of domestic assetsFor example, consider U.S. investors deciding whether to buy Mexican govern-ment bonds or U.S. government bonds. (Recall that a bond is, in effect, an IOU ofthe issuer.) To make this decision, U.S. investors compare the real interest ratesoffered on the two bonds. The higher a bond’s real interest rate, the more attractiveit is. While making this comparison, however, U.S. investors must also take intoaccount the risk that one of these governments might defaulton its debt (that is,not pay interest or principal when it is due), as well as any restrictions that theWHEN YOU HEAR ABOUT A FACTORY BEINGbuilt in Asia or Latin America, have youever wondered who is financing thatproject? The answer might surprise you.
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