Default

In economics, the term ‘default’ refers to a debtor’s failure to meet a financial obligation. In other words, when an individual, company or government is unable to honour its payment obligations for a debt it has incurred, a default occurs. This can occur when a person or entity fails to pay a loan, bond, mortgage or any other type of debt on time.

The consequences depend on the context in which it occurs:

Personal default: When an individual fails to honour a personal loan, credit card or mortgage, he or she may face financial consequences such as credit deterioration, additional interest and loss of assets in case of credit recovery.
Corporate default: companies can go into default if they fail to pay their debts, including corporate loans and bonds. This can lead to legal proceedings by creditors and affect the company’s reputation on the market.
Sovereign default: When a national government is unable to pay its public debt, it can lead to economic instability, financial market crises and a decline in confidence in the government by citizens and foreign countries.

Correlated words

Financial Instrument

A Financial Instrument is a tool or asset used in financial markets for investment, trading, or funding activities, like stocks or bonds.

Purchasing power

Purchasing power refers to the quantity and quality of goods and services that can be acquired with a given amount of money.

Bonds

Bonds are debt securities issued by governments or institutions to raise funds for various financial purposes.

Deficit

A Deficit in economics signifies a situation where expenses exceed revenues, resulting in a state of financial loss.

CPI

The Consumer Price Index (CPI) is the principal measure used to track inflation, reflecting the average price change over time.

Capital

Capital refers to funds or assets for investment or economic activities crucial for business growth and development.

Capital gain

Capital gain is the profit earned from selling an asset at a higher price than its purchase cost, commonly realised in stock markets.

Commercial Bank

Commercial Banks cater to individuals and small businesses, offering deposit accounts, loans, and other traditional banking services.

Central Bank

The Central Bank sits atop the banking hierarchy, working with the government to regulate monetary policy and currency issuance.

Stocks

Stocks are financial instruments representing ownership shares in a company, entitling holders to a portion of the corporate profits.