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Sovereign Bonds,unlike Corporate Bonds,are Insulated from Default Risk Because the Issuer

Question 91

Multiple Choice

Sovereign bonds,unlike corporate bonds,are insulated from default risk because the issuer has the ultimate ability to print money to meet debt servicing obligations. A major reason that investors do in fact associate risk with the bonds of certain countries is that


A) were it necessary to print money to meet their debt obligations, this would likely increase inflation and thereby result in a decline in the real rate of return when the debt matures.
B) there is uncertainty because governments often face re-election during the period prior to the maturity of their sovereign bonds.
C) sovereign bonds are usually less liquid than corporate bonds denominated in the same currency.
D) corporate bonds are backed by tangible physical assets which is not the case with sovereign bonds.

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