Sovereign Debt

Sovereign debt is a financial liability of a national government. Sovereign debt usually refers to bonds which are denominated in foreign currencies. National governments are usually forced to take on sovereign debt when inflation is high or when exchange rates are unstable. Because the debt needs to be paid in a foreign currency, there is the risk that the national government cannot pay the debt come repayment time, which makes the yield of sovereign debt expensive.

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Abraham Lincoln
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