Question

For each of the following countries, identify the single most important (largest) and least important (smallest) source of external funding: United States; Germany; Japan; Canada. Comment on the similarities and differences among the countries’ funding sources.

Short answer

Except for the United States, bank loans are a major source of foreign finance for the rest of the world, while stocks are the least important source of external financing for the rest of the world, with the exception of Country G.

Step-by-step solution

Introduction

External finance refers to monies obtained through the issuance of bonds, shares, debentures, and loans from outside sources.

The cost of external finance is interest or dividends.

Explanation

Non-bankloansarethemostmajorsourceofexternalfinancefortheUnitedStates.

CountryG,CountryJ,andCountryC,ontheotherhand,favourbankloansforforeignfinancing.

BondsaretheleastimportantexternalfundingsourceforCountryUS,CountryJ,andCountryCisstocks,aswellasforCountryG.

Save for the United States, bank loans are a major source of foreign finance for the rest of the world, and stocks are the least important source of external financing for the rest of the world except for Country G.