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Foreign Ownership of US Treasury Securities Case Solution & Answer

Foreign Ownership of US Treasury Securities

Top Holders of US Treasury Securities

The second piece of evidence reveals that Japan was the most significant holder of United States Treasury securities in the year 2004. Japan’s overall is three times more than that of China, which holds the position of the second rank at the moment. The amount of U.S. debt held by Japan concerning the country’s total population is more than that held by any of the other top holders combined. This is very incredible. Nevertheless, when Japan’s position as the world’s second-largest economy is taken into consideration, it makes perfect sense. It relies heavily on exports, the vast majority of which are sent to the United States of America. It is not completely out of the question for Japan to protect its money by investing in the Treasury of the United States. Since 2004, we have increased the amount of money that we have borrowed from other nations. China has now overtaken Japan to become the biggest holder of U.S. debt, making Japan the second-largest holder of American debt behind China. China’s growing political dominance is a significant factor in the rapid growth in US dollar reserves and government securities. This is true even though China’s economy is thriving and there is an increasing demand for investments made using Chinese currency. During the presentation of the Chinese government’s plan for the country’s economic growth, a senior official made the following statement: “We are perilously close to enabling the United States to collapse.” Any decrease in demand for general Chinese products or investment from the United States is likely to have an impact on the Chinese economy because the United States and China have been major trading partners for a significant amount of time. Since the 1970s, the United States economy has relied significantly on China as a key trading partner.

Reason for Rising Foreign Ownership of US Treasury Securities

Investors from other countries in the United States Treasury securities are subject to the possibility of going through three separate phases: appreciation, maintenance, and fall. Since the global financial crisis of 2008, the value of assets held by non-U.S. citizens that are owned by the United States Treasury has grown. Two primary arguments should be explored in favor of it. One of the factors that contributed to the emergence of this trend is the increased access that foreign investors have had to Treasury Securities. For the government to reduce the deficit, it needed to borrow money from various financial institutions. As was said before, the president and Congress are responsible for determining the total amount of money that the federal government spends. Because there is now an imbalance in the budget, the government will be forced to take out loans to acquire the required finances so that it can fulfill its obligations. The Department of the Treasury is in charge of assessing which methods of long-term borrowing are the least expensive. War, natural disasters (including hurricanes, tornadoes, and fires), and a collapse in the economy of the United States are all possible reasons for increased expenditures. For instance, a lower unemployment rate may lead to an increase in the number of people applying for unemployment benefits, which in turn may lead to an increase in expenditures. On the other side, those who are now unemployed do not have to pay taxes, which reduces the amount of money the government brings in. In a similar vein, when there is a high rate of unemployment, the domino effect of unemployment brings a decrease in a company’s profitability. This occurs as a direct result of the domino effect that is caused by unemployment. The government has to come up with an economic stimulus plan that would lead to an increase in expenditure to stop the economy from deteriorating anymore. Borrowing money is one option for covering any increased expenses. As a consequence of this, a considerable proportion of employees working for the Treasury Department believed that the presence of a significant number of investors from other countries helped to keep interest rates low. Because it resulted in lower interest rates for consumers on the domestic market, an overwhelming majority of Committee members saw the ownership of significant quantities of Treasury securities by foreign investors as a beneficial development. There is a possibility that foreign investors may show interest in the United States Treasury. Investors from all over the globe have confidence in the economy of this country as a result of the nation’s high credit rating. They are more likely to deposit money with the United States Treasury when compared to other countries’ likelihood of doing so.

On the other hand, there was not much of a change in the value of United States Treasury securities after 2008. A severe financial crisis erupted during this period, which presented the economy of the whole world with a tremendous barrier to overcome. The government of the United States of America has the most weight in determining the outcome of this matter. Even though the economy of the United States was plummeting, investors did not change their minds about remaining in the country. New investors are avoiding the Treasury Department as much as possible as a result of the current financial crisis. However, given the current status of the economy of the globe, it would not be advisable to make any investments at this time. Nearly all of the earliest investors were forced to place their first investments in the Treasury as a condition of participation.

At the tail end of the 1990s and the beginning of the 2000s, a new tidal wave of investment began to flood into Europe and China. As a result of the relaxing of controls placed on the dollar’s exchange rate, investors are increasingly turning to sources of funding located in nations other than the United States. On the other hand, investors have started to move their emphasis away from the United States as a result of the country’s ongoing financial troubles and the improving economic prospects in China and Europe…..

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