A sovereign that is issuing debt denominated in foreign currency is exposed to a mismatch between the value of its assets that can be used to serve the debt, denominated in local currency, and the value of its liability. During economic crisis, when the probability of default by the sovereign...

Sovereign default often affects country's trade relations. The defaulter's currency depreciates while trade volume falls drastically. To explain this connection, this study proposes a model to incorporate real depreciation along with sovereign bankruptcy. Defaulters must exchange more of their...