Uncertainty of development expenditures due to floating-rate loans
Nature
Although most cross-border lending, other than short-term, is advanced at floating rates, many developing country borrowers would prefer fixed-rate loans. The ability to predict accurately the cost of credit, which is impossible with floating rates, would permit these countries to engage in more accurate cost-benefit analysis. If a bank lends at a fixed rate, it must absorb the impact of interest rate fluctuations. The impact of a variable rate is absorbed by the customer.
Broader
Aggravated by
Strategy(ies)
Type
(F) Fuzzy exceptional problems