http://www.cbc.ca/world/story/2010/04/13/greece-debt-bonds.html
Summary:
Greece has sold $1.56 billion in bonds this Tuesday in attempt to relieve some of the debt they have accumulated over the years and to avoid an International Monetary Fund bailout. The Greek government is under much stress for they have to pay back $70 billion worth of loans before May (when the loans are due). The decision to quickly pay back the loans came when the centre-left Greek government deemed elevated market rates would increase their chances of receiving a bailout. Six-month and one-year Greek bonds were sold for 4.55% and 4.85%, much higher than in the past. Although the bonds they sold are only a small fraction of the debt, it is positive that there are more people interested in buying them than the amount available for sale. The European Union and IMF have agreed to bankroll a $54.3 billion loan to Greece if necessary. On a brighter note, investors were assured by the IMF that Greece will continue to pay their debt for this year.
Connections:
The connections I was able to make with this article and Chapter 5 was the topic of cash flow. Cash flow is the measurement of cash inflows (from A/R) and cash outflows (from purchasing inventory). Where does the money come in from and where is it going out to. In this situation, Greece has had a greater cash outflow than cash inflow, resulting in being in debt to their lenders. To relieve some of the amount of debt, the effort to sell bonds is a good start. This is an increase in capitalization for more bonds are sold.
Reflections:
I think that selling some of their bonds is a good start in decreasing the amount of debt owed but from the article, I got the sense that they are using this as a last effort to lower their debt. With $70 billion worth of debt, it’ll take something much bigger than bonds to reduce the amount. Perhaps Greece should have sold bonds in the beginning when debt started to accumulate rather than wait until now. On another hand, I was rather surprised that there were more people willing to purchase the bonds at a higher rate than in the past. It will be interesting to see when Greece pays off the entirety of the debt.
Betty Chan
F.Acc12 1-2
Subscribe to:
Post Comments (Atom)
It is true that the debt of Greece needs something bigger than just selling their bonds to pay off their debts. There are many cases that people focus too much of earning more money and try to pay the debt off at once, but most of those people ended up fail because their debt just grow bigger due to the interest. I believe that selling the decision of selling their bonds are a great idea because in that way they can at least stop the debt from growing. However, this is only a solution for now.
ReplyDelete