Why a strong dollar’s a dud for indebted foreign firms
The dollar is super strong right now. It’s up 11 percent against the euro, and 16 percent versus the yen.
That’s good news for Americans who want to spend their money abroad. It’s even better news for foreign companies who want to sell their stuff to us. Except for the ones that borrowed money in dollars – which is a lot of companies over the last few years.
Those companies have to pay interest in dollars on those loans, but they get paid locally in their own currency. So, as the dollar rises, they have to pay more local currency to buy the dollars to service their debts. There’s a big risk here, if companies start to default on those loans, or, worse go bankrupt. It could present a threat to their host countries, and maybe to the entire economy.
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