Which risk is primarily associated with the likelihood of a government failing to meet its debt obligations?

The correct answer highlights the specific type of risk associated with a government's inability to fulfill its debt obligations, which is known as sovereign risk. This risk arises from the possibility that a government may default on its loans or bonds due to various financial or political reasons, such as economic instability, changes in government policies, or external pressures.

Sovereign risk is particularly important for investors in government securities, as it reflects the likelihood of repayment by the government issuing the debt. If investors perceive a high level of sovereign risk, it may lead to increased borrowing costs for the government or negatively affect the country's credit ratings.

In contrast, market risk relates to the broader movements in the market that can affect the value of investments, regardless of the specific issuer's creditworthiness. Credit risk pertains to the possibility that a borrower may default on a loan or obligation, but it is not unique to government debt—as it can apply to corporations and individuals as well. Operational risk involves failures in internal processes, people, or systems and is unrelated to the financial stability or creditworthiness of a government.