Question

1)How can your firm lower its debt costs by tapping global credit markets in the future? Will it cost less to borrow from low interest rate countries?

2) How does purchasing power parity affect your firm's purchase of goods and services from other countries? Will it cost less to buy identical supplies from other countries that have lower prices?

Please answer for Starbucks

Answer 1

1)

Firms tend to borrow from the financial institutions to make the investment in their businesses. Thus interest rate forms a significant part of the cost.

Thus, if the interest rate goes down, there will be a substantial decline in the cost of production or debt will decline for the firm.

Hence, most of the firms go for external commercial borrowing or firms borrow from the low-interest countries. It has been seen that many firms in developing countries tend to borrow from developed countries. The interest rates in developing countries are relatively higher when compared to developed countries. Low interest countries are cheaper source of investment.