Question

Debt Service ratio represents the potential capacity of nation to service ____________.

• A. external debt
• B. internal debt
• C. credit
• D. None of above

Answer 1

The correct option is A external debt

Debt service ratio is the ratio of debt service payments ( principal + interest ) of a country to that country's export earnings. A country's international finances are higher if this ratio is low. Hence, debt service ratio represents the potential capacity of nation to service external debt.