Inflation & tax rates; their effect on financial planning and the real cost of debt

Article Abstract:

Inflation may help borrowers, who make payments with diminished purchasing power, and have a detrimental effect on lenders. Since interest rates include anticipated inflation, some analysts believe that the borrower gains only from unanticipated inflation. Lenders gain when price increases are smaller than predicted. Real debt cost must also include tax rates, since there are tax deductions for interest, including the portions tied to inflation. The government is therefore a third party to loan transactions, and income-paying borrowers may have no real economic costs, even when interest rates exceed inflation rates.

Misc. business credit institutions, Financial planning, Inflation (Finance), Taxation, Inflation (Economics)

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Guaranteed impact

Article Abstract:

Lenders occasionally accept debt guarantees in lieu of an infusion of capital when providing loans to corporate borrowers who do not have sufficient equity to obtain funds on the terms they want. Such guarantees are usually provided by separate entities and are intended to serve as a means of reducing the risks lenders carry. The example of a private company whose sole shareholder provided a debt guarantee to obtain a loan is discussed to illustrate how corporate valuations should be conducted in cases involving such guarantees.

Corporations, Valuation, Loans

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Why Latin America's debt burdens the U.S

Article Abstract:

Most Americans feel that the Latin American international debt crisis does not affect them, but they are wrong. Reform proposals that would solve the Latin American debt crisis at the banks' expense are unacceptable, since the banks are not willing to forego profits and interest. The Mexican debt crisis is affecting U.S. foreign policy and the U.S. economy, with declining exports, an increasing trade deficit, and increased competition from Latin American debtor nations.

International relations, Mexico, United States economic conditions, Central America, South America, External debts

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