Foreign currency debt

Debt in a currency the borrower cannot issue, so it must be serviced from export earnings or reserves. The reason a sovereign's foreign currency rating is usually below its local one.

Where you will meet it

Foreign currency debt appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain how sovereign credit is analysed
  CFA Level I · Fixed Income

  “The decisive distinction is between local currency debt, which a sovereign with its own central bank can in principle print to service at the cost of inflation, and foreign currency debt, which it cannot — which is why foreign currency ratings are usually lower.”

• Explain how issuers that are sovereign, non-sovereign, quasi-government or supranational raise funds
  CFA Level I · Fixed Income

  “Debt in the sovereign's own currency is backed by the power to tax and, ultimately, to create money, so it carries less default risk than foreign-currency debt, which must be serviced from export earnings or reserves.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with F · Glossary