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wundayatta's avatar

What tools are available to investors/lenders to adjust for the risk of lending to different borrowers?

Asked by wundayatta (58638points) February 18th, 2013

In Europe, there are different risks in Spain and Greece than in England and Germany. I just read an article saying that Spain, when it had a separate currency, could devalue its currency in order to reflect its lower rates of productivity and profitability.

However, this tool is no longer available when they use the same currency. So if you don’t have different currency, what tools are at your disposal that can reflect the different risks of different investments in different geographic areas?

Are any of these tools illegal because they discriminate in an illegal way (say, based on race or nationality)? Are there tools that can be used in Europe but not in the US?

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1 Answer

zenvelo's avatar

That’s what credit ratings are all about. When the US credit rating was lowered to AAA, it was a signal that lending to the US was just a little riskier.

These tools are not illegal, they are the grease to let investors compare one risk against another.

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