Sovereign risk is

Select one:

a.the possibility that political factors may impair a borrower's ability to meet debt-servicing obligations.

b.the risk resulting from changes in foreign exchange values that affect the return on loans or investments denominated in other currencies.

c.the possibility that a sovereign country as a borrower may become unable or unwilling to service its foreign obligations or meet guarantees of nongovernmental or private borrowings.

d.the possibility that a sovereign country as a borrower may become bankrupt.

 

The correct answer is c

A sovereign risk is a potential threat that arises when a sovereign government may be unable or unwilling to meet its obligation to service its debts either in terms of repaying the interests or the principal. 

Step-by-step explanation

Ability to pay is dependent on the country's economic position where a country with a stable economic growth is able to comfortably service its debt. A country with negative economic growth experiences challenges in servicing its debts and may lead to sovereign risk.

Willingness to pay the debts is dependent on the country's political system and the leadership of a country. Some leaders may take up the positions and refuse to pay the debts leading to sovereign risk but of which it is rare.