March 12 (UPI) -- Part of a series on capital flows and political risk in Latin America
Every loan a bank makes, whether to a farmer, a small business or a family buying a home, starts with a basic question: What does it cost the bank to raise money? That cost influences the loan's interest rate, the bank's willingness to lend, and the amount of financing that reaches the real economy.
In finance, the standard measure is WACC, the weighted average cost of capital -- the blended cost a bank pays for funding, combining relatively cheap sources (deposits and debt) with the higher returns expected by equity investors. Lower WACC leaves more room to lend at competitive rates; higher WACC usually means more expensive, scarcer credit.
Across Latin America, WACC varies widely, helping explain why credit is affordable in some countries and costly in others. Uruguay, with stable institutions and a long record of sound economic management, sits at the favorable end of that spectrum.
Why country risk matters for your loan rate
