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In the United States, government rescues are not as common as in other countries. Assuming that...

In the United States, government rescues are not as common as in other countries. Assuming that this is expected to continue in the future, the risk premium on a given level of debt would be higher for U.S. firms than for firms of other countries, everything else being equal.

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Answer #1

The given statement is completely TRUE as in the United States, government rescues are not as common as in other countries. Assuming that this is expected to continue in the future, the risk premium on a given level of debt would be higher for U.S. firms than for firms of other countries, everything else being equal. This is so because since there is no government backing, the risk associated with debt of U.S Firms grows higher and risk premium goes up simultaneously. There is always a premium for debt as it is riskier and this will magnify if there is no government to bail out.

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