Answer-first summary for fast verification
Answer: Printing money to pay its local currency debt can be useful for a country in the short term, but can result in serious economic consequences in the long term.
## Explanation Option D is correct because: - **Local currency debt**: Countries can print their own currency to service local currency debt, which provides short-term relief but leads to inflation and currency devaluation in the long term - **Foreign currency debt**: Countries cannot print foreign currencies, making default more likely for foreign currency-denominated debt Other options are incorrect: - A: Foreign currency debt ratings are typically **lower** than local currency ratings due to higher default risk - B: Both types of bondholders can suffer losses during default, though recovery rates may differ - C: Foreign currency debt is typically sold to **international** investors, not domestic ones This relates to sovereign risk analysis in fixed income markets.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
A fixed-income trader recently joined a large bank that acts as a dealer in the sovereign bonds of several countries. The trader researches the differences between a country's foreign currency sovereign bonds and its local currency sovereign bonds, including the differences in their default risk and investor demand. Which of the following would the trader find to be correct?
A
A country's foreign currency debt rating is typically higher than its local currency debt rating.
B
Investors in foreign currency sovereign bonds typically lose the entire value of their investment upon a country's default, whereas investors in local currency bonds do not.
C
Debt issued in foreign currency is usually sold to investors based in the issuing country.
D
Printing money to pay its local currency debt can be useful for a country in the short term, but can result in serious economic consequences in the long term.
No comments yet.