EECS 1541 Lecture Notes - Lecture 24: Credit Risk
23 Jun 2018
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EECS 1541 Lecture 24 Notes
Introduction
Risk of International Money Market Securities
When MNCs and government agencies issue debt securities with a short-term maturity
(one year or less) in the international money market, these instruments are referred to
as international money market securities.
However, some international money market securities have defaulted, so investors in
this market need to consider the possible credit (default) risk of the securities that are
issued.
International money market securities are also exposed to exchange rate risk when the
currency denominating the securities differs from the investor’s home currency.
Specifically, the return on investment in the international money market security will be
reduced when currency denominating the money market security weakens against the
home currency.
This means that, even for securities without credit risk, investors can lose money
because of exchange rate risk.
International credit market
Multinational corporations and domestic firms sometimes obtain medium-term funds
via term loans from local financial institutions or by issuing notes (medium-term debt
obligations) in their local markets.
However, MNCs also have access to medium-term funds through banks located in
foreign markets.
Loans of one year or longer that are extended by banks to MNCs or government
agencies in Europe are commonly called Euro credits or Euro credit loans, which are
transacted in the Euro credit market.
These loans can be denominated in dollars or in one of many other currencies, and their
typical maturity is five years.
Document Summary
When mncs and government agencies issue debt securities with a short-term maturity (one year or less) in the international money market, these instruments are referred to as international money market securities. Multinational corporations and domestic firms sometimes obtain medium-term funds via term loans from local financial institutions or by issuing notes (medium-term debt obligations) in their local markets. These loans can be denominated in dollars or in one of many other currencies, and their typical maturity is five years. Mncs and government agencies issue debt securities with a short-term maturity (one year or less) in the international money market, these instruments are referred to as international money market securities. However, some international money market securities have defaulted, so investors in this market need to consider the possible credit (default) risk of the securities that are issued. International money market securities are also exposed to exchange rate risk when the currency denominating the securities differs from the investor"s home currency.
