Objective:
Students will analyze the concepts of callable loans, refinancing, and sovereign debt, exploring how these financial instruments impact borrowers and lenders in terms of risk, strategy, and long-term economic implications.
Materials Needed:
- Handouts defining callable loans, refinancing, and sovereign debt with real-world examples.
Lesson Steps:
1. Introduction (10 minutes):
- Define callable loans: Loans where the lender has the right to demand repayment before the maturity date.
- Define refinancing: The process by which borrowers replace an existing loan with a new loan, often to secure better terms (e.g., lower interest rates).
- Define sovereign debt: Debt issued by national governments, often used to finance public spending.
- Explain how these tools interact, using a government or corporation’s perspective to illustrate strategic borrowing and repayment decisions.
2. Viewing Clip (5 minutes):
- Set the context: Discuss how callable loans give lenders power and create urgency for borrowers to act strategically.
3. Group Discussion (15 minutes):
- Divide students into small groups to discuss:
- How does the Iron Bank’s callable loan impact Cersei’s financial decisions?
- Why might lenders prefer callable loans, and how do they manage risk?
- How does refinancing benefit borrowers like Cersei, especially in sovereign debt situations?
- What are the risks of default for sovereign borrowers, and how does it affect their reputation and ability to borrow in the future?
4. Concept Application (20 minutes):
- Case Study Analysis:
- Provide real-world examples of callable loans and refinancing:
- Callable bonds in corporate finance.
- Sovereign debt refinancing during economic crises (e.g., Greece during the Eurozone crisis).
- Students analyze:
- The benefits and risks of callable loans for both lenders and borrowers.
- Why refinancing can be a critical tool for managing debt.
- The impact of default on sovereign credit ratings and borrowing costs.
- Highlight parallels to Cersei’s situation, emphasizing the strategic use of funds and repayment timing.
5. Wrap-Up and Reflection (10 minutes):
- Summarize key takeaways about callable loans, refinancing, and sovereign debt:
- Callable loans provide flexibility for lenders but create uncertainty for borrowers.
- Refinancing is a strategic tool to improve debt terms or extend repayment periods.
- Sovereign debt carries unique risks, including the impact on national reputation and global markets.
- Pose a reflective question: How do these financial tools balance the power dynamics between borrowers and lenders?
5. Activity or Homework (15 minutes):
- Federal Government Debt Management
- Place students into the role of a finance manager at the U.S. Treasury.
- Ask students to do the following:
- Find the current level of the federal debt.
- Research how the federal government arranges the loans to finance their activities (by issuing bonds, notes, bills).
- Students should then relate the refinancing of callable loans in the clip to the method the federal government uses to refinance its debts (rolling over bonds).
- Ask students about the implications for the need to ever fully pay off the federal debt, and if there is a practical borrowing limit for government borrowing. If there is a limit, who imposes it?