Which borrower typically has the lowest default risk according to the text?

• A. A risky company
• B. The U.S. government
• C. A company with unstable finances
• D. A small business with high leverage

Answer: (B)

Default risk is the likelihood that a borrower won’t be able to repay its debt. The U.S. government has the lowest default risk because it can raise taxes and, if needed, issue more of its own currency to pay its obligations. This ability makes government debt essentially risk-free relative to private borrowers, so government bonds are used as the benchmark for low risk. In contrast, a risky company, a company with unstable finances, or a small business with high leverage depend on ongoing profits and cash flow; if earnings falter or fixed payments are too large, they may struggle to meet debt obligations, raising the chance of default. So the government is the best answer.