According to the material, default risk is lower for which issuer?

• A. A risky company
• B. The U.S. government
• C. A municipal agency
• D. A foreign government

Answer: (B)

Default risk is the chance that a borrower won’t make required payments on time. Among the issuers listed, the U.S. government has the lowest risk because it can raise taxes and, in practice, borrow or print currency to meet its obligations. This sovereign power makes default highly unlikely compared with a risky company, whose finances can deteriorate and lead to missed payments, or a municipal agency, which may face revenue shortfalls even if typically safe. A foreign government can also face default risk depending on its economic situation and policies. So, the issuer with the lowest default risk is the U.S. government.