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Principles of Economics- Mankiw (5th) 640

Principles of Economics- Mankiw (5th) 640 - 662 PA R T E L...

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662 PART ELEVEN THE MACROECONOMICS OF OPEN ECONOMIES The perceived economic and political risks of holding assets abroad The government policies that affect foreign ownership of domestic assets For 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 of the issuer.) To make this decision, U.S. investors compare the real interest rates offered on the two bonds. The higher a bond’s real interest rate, the more attractive it is. While making this comparison, however, U.S. investors must also take into account the risk that one of these governments might default on its debt (that is, not pay interest or principal when it is due), as well as any restrictions that the W HEN YOU HEAR ABOUT A FACTORY BEING built in Asia or Latin America, have you ever wondered who is financing that project? The answer might surprise you.
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