A key difference between sovereign default and corporate bonds is:
A)unlike a corporation,a country facing difficulty meeting its financial obligations is can not default.
B)unlike corporate debt,sovereign debt prices are not inverse to yields.
C)unlike a corporation,any country can turn to the EMU to pay off its debts.
D)unlike a corporation,a country facing difficulty meeting its financial obligations typically has the option to print more currency.

Question

Quizplus · Accepted Answer

Unlike corporations, sovereign countries have the option to print more currency to pay off their debts in case they face difficulty meeting their financial obligations. This essentially means that they have the ability to monetize their debt, which corporations do not have. Therefore, option D is the correct answer. Option A is incorrect as countries can default on their debt just like corporations. Option B is also incorrect as sovereign debt prices are inversely related to yields. Option C is incorrect as not all countries are part of the EMU, and even if they are, they may not be able to access funds to pay off their debts depending on their financial situation.

A Key Difference Between Sovereign Default and Corporate Bonds Is