A possible reason for the high systematic risk of the debt service ratio (DSR)in LDCs and EMs is

Question

Quizplus · Accepted Answer

The debt service ratio (DSR) is the ratio of debt payments to disposable income, and it is particularly sensitive to interest rates. As LDCs and EMs usually borrow in foreign currencies, rising nominal and real interest rates in the lending countries can increase the DSR and lead to a higher risk of default. This sensitivity to interest rate changes is a significant reason for the high systematic risk of the DSR in these countries. The other options do not directly explain the high systematic risk of the DSR.

A Possible Reason for the High Systematic Risk of the Debt