There is a limit to a nation's ability to use international financial markets to supplement domestic consumption or investment. Why?
A) Lenders like a diversified group of borrowers.
B) International lenders require collateral.
C) Communication is difficult because of language and differences in legal systems.
D) At some point, a nation will not be able to service the rising level of external debt.

Question

Quizplus · Accepted Answer

As a nation takes on more external debt, the level of debt service (interest and principal payments) required to service that debt will increase. At some point, the nation may not be able to generate enough income from exports or other sources to meet its debt service obligations. This can lead to default and/or a loss of investor confidence, making it more difficult for the nation to borrow in the future. Therefore, there is a limit to a nation's ability to use international financial markets to supplement domestic consumption or investment.

There Is a Limit to a Nation's Ability to Use