The risk premia of sovereign bonds now reflect not just the insolvency risk of some countries but an exchange rate risk, which should not theoretically exist in a currency union.
Such products are attractive for speculators and investors who wish to have exposure to a foreign asset, but without the corresponding exchange rate risk.
These include the increased cost and lack of supply in the local deposit market, exchange rate risk and the increased capital requirements for investors.
It was based on the principle that drought was one of many risks facing farm businesses, along with commodity price risk, exchange rate risk and interest rate risk.
Local customs and legislation can slow things down and a change in policy, cultural difference and exchange rate risks may hinder businesses looking to expand.
