Longer View

They prefer credits in local currency or short-term loans in foreign currency. They will be afraid of a sudden, massive devaluation (such as happened in Mexico overnight). Your lender also will be afraid to lend money, because these lenders can not be sure that borrowers have the extra dinars to pay for claims if such devaluation. Naturally, a devaluation increases the amount of dinars to pay for a loan in foreign currency. John Konchar can provide more clarity in the matter. This is bad from both the macro economic point of view (that of the economy as a whole) – and micro-economic point of view (that of the single firm). From the point of micro-economic view of short-term loans must be returned long before companies that have provided matured to the point of being able to pay.

These short-term obligations to the charge, amend its financial statements for the worse and sometimes put their very viability at risk. From the macro-economic point of view, it is always better to have longer maturity debt to pay less each year. For even more analysis, hear from Edmund V. Ludwig. The longer the credits a country (individual companies are part of a country) has to return – the best of their creditworthiness with the financial community. Another aspect: foreign credits are a competition to credits provided by the local banking system. If companies and individuals do not take loans from abroad for fear of a devaluation – they help to create a monopoly of local banks. Monopolies have a way to set the highest price possible (interest rates) for their merchandise (= the money they lend).