Sovereign countries have no capacity to go broke but have the ability to assert their independence where without their consent; they cannot be sued for failure to consent to the terms of loans acquired. Therefore, the probability that a country or a state managed agency would fail to comply and go as per the loan agreement during such instances as difficult financial times or during political crisis is what is referred to as the sovereign risk. This probability differs from a country to another due to the government and economic frameworks guiding the economic performance of the countries. Besides the government’s capacity to borrow on behave of a country, corporate within a country as well as foreign investors have the capacity to borrow credit facilities from the local financial institutions as well as across the countries. The governments rely on the financial assets as well as government bonds to offset the acquired debts. Therefore, any factor that has the capacity to influence the government’s or corporate ability to honor and observe the agreements assented to while borrowing the credit facilities have the capacity of rising the tendency of the country to deliberately overlook the repayment of the borrowed finances. Some other circumstances are explained in the probability that countries engaged in forex trade may be forced by circumstances to pay debts accrued with the uncertainties that characterize the market. Speculations on which way the currencies would be going makes countries hesitant to repay debts in the speculation that they pay the debts at the most favorable exchange rates to them. Countries therefore reason just as economic agents and will evaluate the likelihood of the trading foreign currency to rise or to fall in value before making economic decisions. When the countries speculate that foreign currency is about to rise, they invest higher in buying the currency in order to realize higher returns when they sell the currency at the higher prices likely to be in future. This has direct implications to the willingness and ability of a country to honor agreements consented to while accepting credit facilities from other countries or financial institutions (Anon, 2005-2013, para 1-5; Du and Schreger, 2013, p. 1-2). In the forex trade, sovereign risk is experienced when countries changes the rules that bound them while contracting with foreign investors. It therefore implies that the countries first dishonor the written agreements before they change the rules of the contracts. Equally, private investors always run at a risk when advancing credit services to sovereign countries because in the event that the countries fail to honor the agreements, the investor lacks ways and the right to sue a sovereign country. This therefore lenders the investor to who a country owes a debt vulnerable to loosing the debts because of sovereign risk. Moreover, the risk of the investor loosing on the agreement is heightened by the reason that countries will request for the loan because they are in a financial crises which is one basic reason for the occurrence of the
SOVEREIGN RISK Instructor Institution Submission Date Discussion Sovereign countries advance and receive loans for diverse reasons ranging from infrastructural development, on humanitarian basis as well as for general economic development. The global financial institutions such as the World Bank offer the credit facilities to nations through which many countries have been in a position to realize development and to facilitate the development projects, which are rather challenging for the sovereign countries to realize without the loan facilities…
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ousing sector that has not registered the expected results, an occurrence that has been attributed to the high housing rates in recent past (Timiraos).
Personally, I share the same ideology as Nick Timiraos that stakeholders in the housing sector should consider reviewing the
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