MBA 615 Park University Debt Securities Discussion Responses

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Within business, working professionals should become comfortable receiving and giving constructive feedback. Critical analysis of topics, and providing and receiving constructive feedback, is important in one’s professional growth and development and a core competency for leaders. You will be expected to read the initial posting of at least ONE peer or instructor, and then provide constructive criticism to their peers’ initial postings. You should highlight strengths as well as opportunities for improvement:

  1. Point out what you perceived to be the strengths of the initial posting along with supporting rationale.
  2. Identify specific opportunities for improvement with regard to the content in the initial posting. Furthermore, you should provide supporting rationale for your stated position, as well as concrete suggestions and guidance intended to strengthen the effectiveness of the content.

Each response should be a minimum of 250 words

STUDENT 1 MARC

Good evening class, 

  1. National governments issue debt securities known as sovereign bonds, which can be denominated in either local currency or global reserve currencies, like the U.S. dollar or euro. (source(Links to an external site.) (Links to an external site.)). For this discussion question, first define what these bonds are.  Why are these issued?  Then discuss the issues that can arise when investors invest in these types of bonds.  What are the advantages and disadvantages of these bonds

Sovereign bonds are a type of security that is issued by national governments. These securities can be issued in their own government’s currency or a foreign currency (Chen, 2022). Governments issue these bonds to earn money for several reasons to include paying debt or funding programs. When compared to U.S. bonds, sovereign bonds carry a significantly higher amount of risk. This is due to certain fluctuations in a government’s economic standings. At the end of the day, if a person invests their money in a certain country’s bonds, there will be no guarantee that they will have the funds to repay the investor. Especially when the bond is long term and the government has a weak economic.

Like many investments, sovereign bonds have their fair share of advantages and disadvantages. One of the major advantages of investing in sovereign bonds is that a person or organization can increase its diversity with investing in the international assets. Furthermore, investors have the opportunity to choose the level of risk by selecting the bonds based off their rating (Kuepper et al., 2021). These ratings are based off several factors to include: Per capita income, GDP growth, inflation, and debt.

As far as disadvantages are concerned, the level of risk is the largest. There are too many factors that drive sovereign bonds and the ability for governments to pay back their debts (Hayes & Kelly, 2021). Another consideration is that a government can essential print more money to help pay back their debt, however, this can cause inflation and damage the value of their currency. Likewise, factors such as political influence can affect the ability for governments to pay back their debt. For instance, if there is a problem with a specific countries ability to pay debts. They may turn to unpopular decision such as raising taxes to generate more income. In turn, this may cause a civil disruption and affect the priorities of the government’s economics.  

In conclusion, sovereign bonds have their advantages and disadvantages like every investment. The investment in sovereign bonds seems to have little advantage when compared to the high risk due to multiple factors. All of which can hinder the ability for a government to pay back their debt. I certainly feel as though there are many other investments with a lower risk, and higher return.

References 

Chen, J. (2022, May 28). What Is a Sovereign Bond? Investopedia. https://www.investopedia.com/terms/s/sovereignbond…

Hayes, A., & Kelly, R. (2021, April 21). Sovereign Risk. Investopedia. https://www.investopedia.com/terms/s/sovereignrisk…

Kuepper, J., Velasquez, V., & Stapleton, C. (2021, May 24). Learn About Sovereign Credit Ratings, From AAA to Junk. The Balance. https://www.thebalance.com/what-are-sovereign-rati…

STUDENT 2 CELINA

Question 3 

Consider the European sovereign debt crisis.  In 2011, many countries in the European markets were suffering through a sovereign debt crisis which impacted multiple nations (Greece, Spain, Italy, Ireland, Portugal).  What were some of the causes and how did countries respond to this crisis?

      The great crisis that started in the real estate market around 2008 in the United States hit the world financial markets. In the case of Europe, the measure increased national deficits, which were already very high. Some countries spent more money than they were able to raise and started accumulating debt. From then on, in 2011, the economic crisis in Europe began. The main European countries affected were Portugal, Italy, Ireland, Greece and Spain. Greece was the first country hit by the crisis and reached a hole in the public accounts of 113% of its gross domestic product (Kuepper, 2021). The situation became so critical that the European Union and the International Monetary Fund (IMF) proposed aid packages for Greece, Ireland and Portugal. By releasing the package to Greece, the IMF forced the other countries in the crisis to adopt fiscal adjustment plans. The acronym PIIGS (English Pigs) was created, which refers to countries that have a considered bad economy and that have exceeded the stability pact of the European Central Bank (Ganti, 2021).

      By that time there were already rumors that Greece would be withdrawn from the Eurozone. As part of the measures imposed by the European Union and the IMF, the Greek government had to adopt strong measures, such as increasing taxes on fuel, alcohol and tobacco, reducing wages in the public sector and other measures that generated unemployment, revolt of the population that lost their jobs and purchasing power (Psaropoulos, 2010). Since 2008, when the crisis broke out in European countries, thousands of people opposed to the measures adopted by the government came out in demonstrations in Greece. These people were angry and dissatisfied, as they did not feel responsible for the economic recession and awere not willing to pay the price demanded to solve the problems of the crisis. The economic crisis in Europe has toppled around 10 heads of government since 2009, the last to fall was Spain’s Prime Minister José Luis Zapatero in parliamentary elections on November 20, 2011(Britannica, 2022).

REFERENCES 

Britannica, T. Editors of Encyclopaedia (2022, July 31). José Luis Rodríguez Zapatero. Encyclopedia Britannica. https://www.britannica.com/biography/Jose-Luis-Rod…

Ganti, A. (2021, May 19). Piigs definition. Investopedia. Retrieved August 31, 2022, from https://www.investopedia.com/terms/p/piigs.asp#:~:text=Key%20Takeaways,due%20to%20its%20offensive%20nature.

Kuepper, J. (2021, November 25). What caused the eurozone debt crisis? The Balance. Retrieved August 31, 2022, from https://www.thebalance.com/the-eurozone-crisis-cau… 

Psaropoulos, J. (2010, February 25). Greeks protest new taxes on fuel, alcohol and tobacco. The Irish Times. Retrieved August 31, 2022, from https://www.irishtimes.com/news/greeks-protest-new… 

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