Question

Explain the following method of debt redemption:

Debt conversion

Discuss the following methods of debt redemption:

Debt conversion

Answer 1

• Converting public debt entails exchanging existing debt for new debt. Although the loan is not truly repaid via this method, the type of debt is altered.
• Converting a high-interest debt to a low-interest debt is the process of conversion. It’s possible that the government took out a loan while interest rates were high.
• However, it might turn an old high-interest loan into a new low-interest loan if the market interest rate declines. As a result, the government can lessen the financial strain of debt. Only when the government has strong creditworthiness is this feasible.