Assume that countries A and B are of similar size, that they have similar economies and the government debt levels of both countries are within reasanable limits. Assume that the regulations in country A require complete disclosure of financial reporting by issuers of debt in the country but that regulations in country B do not require much disclosure of financial reporting. Explain why the government of country A is able to issue debt at lower cost than the government of country B.

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Originally Posted by ladie218

Assume that countries A and B are of similar size, that they have similar economies and the government debt levels of of both countries are within reasanable limits. Assume that the regulations in country A require complete disclosure of financial reporting by issuers of debt in the country but that regulations in country B do not require much disclosure of financial reporting. Explain why the government of country A is able to issue debt at lower cost than the government of country B.

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Homework rules mandate you have to actually show us you have attempted it first.

I don't understand the question that is being ask. The only thing I can come up with Lower cost of debt is the effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; however, because interest expense is deductible, the after-tax cost is seen most often. This is one part of the company's capital structure, which also includes the cost of equity

[QUOTE=ladie218;3186263]I don't understand the question that is being ask. The only thing I can come up with:


The cost of debt refers to the effective interest rate a company pays on the debt it borrows. The cost of debt can be written as either before-tax cost or after-tax cost. Most commonly, the cost of debt is reported in after-tax costs, since interest on most debt is deductible on tax returns.

Companies borrow money for a number of reasons. Often, debt is necessary to expand a business or to keep a business running smoothly. All of this debt, however, comes at a cost: the interest rate charged on the money that the company is borrowing, which is the amount of money the company pays for the privilege of using borrowed money to expand.

Think about the relationship between risk and rates, and then about the relationship between risk (as perceived by the buyers of the paper) and transparency (with respect to the borrower's financial situation).