The influence of country risk on financing and investment decisions
Posted: Mon Jan 20, 2025 3:37 am
This relationship is quite simple and can be summarized as follows: the higher the risk of a country, the higher the surcharge paid to the US Treasury . This means that a high result for this index implies a high interest rate on the government bond.
The consequence of the increase in the indicator is that foreign investment is less attracted to the national financial market , which leads to lower economic growth. This can also lead to increased unemployment and lower wages for the population, which requires the government to issue more public bonds and take on more debt.
This happens because it becomes more difficult for Brazilian companies to seek financing in other countries. At the same time, there is an increase in the economy's basic interest rate and the Minimum Attractive pakistan whatsapp data Rate (TMA), which causes a more significant impact on financing costs.
In this way, a country's risk is the main guide for investors' decision-making , who can lend – or not – money to the financial market and to the institutions that are present in it.
The increase in risk also raises interest rates on financing, whether from public or private institutions.
The positive scenario
The reduction in Brazil's risk has been noticed for some years. This attracts investors , which increases the amount of dollars in the market and has an immediate effect on the exchange rate, as well as on the stock market , which now has more trading.
It is important to mention that the risk should remain low if the country has a good political environment, which allows the approval of fiscal reforms and leads to the equalization of this policy.
It is worth highlighting that current macroeconomic policy is based on 4 biases:
floating exchange rate regime
fiscal austerity policy (primary surplus)
inflation targeting monetary policy
challenges for the future
Thus, even though there are elements that may compromise the country's systemic competitiveness in the international context (such as low levels of education and workforce qualification), it is important to highlight that economic performance has been improving.
With the improvement in this aspect, there are more people believing in the performance of the economy, companies become more profitable, investors acquire more on the stock market, which tends to rise and the results become positive.
The consequence of the increase in the indicator is that foreign investment is less attracted to the national financial market , which leads to lower economic growth. This can also lead to increased unemployment and lower wages for the population, which requires the government to issue more public bonds and take on more debt.
This happens because it becomes more difficult for Brazilian companies to seek financing in other countries. At the same time, there is an increase in the economy's basic interest rate and the Minimum Attractive pakistan whatsapp data Rate (TMA), which causes a more significant impact on financing costs.
In this way, a country's risk is the main guide for investors' decision-making , who can lend – or not – money to the financial market and to the institutions that are present in it.
The increase in risk also raises interest rates on financing, whether from public or private institutions.
The positive scenario
The reduction in Brazil's risk has been noticed for some years. This attracts investors , which increases the amount of dollars in the market and has an immediate effect on the exchange rate, as well as on the stock market , which now has more trading.
It is important to mention that the risk should remain low if the country has a good political environment, which allows the approval of fiscal reforms and leads to the equalization of this policy.
It is worth highlighting that current macroeconomic policy is based on 4 biases:
floating exchange rate regime
fiscal austerity policy (primary surplus)
inflation targeting monetary policy
challenges for the future
Thus, even though there are elements that may compromise the country's systemic competitiveness in the international context (such as low levels of education and workforce qualification), it is important to highlight that economic performance has been improving.
With the improvement in this aspect, there are more people believing in the performance of the economy, companies become more profitable, investors acquire more on the stock market, which tends to rise and the results become positive.