Certified Government Financial Manager (CGFM) Practice Exam

The term that best describes an entity's ability and willingness to meet its financial obligations is "Creditworthiness." This concept involves assessing the likelihood that an entity, such as a government or corporation, will be able to meet its debt obligations in a timely manner. Creditworthiness encompasses various factors, including credit history, financial ratios, income sources, and overall financial stability. It is a crucial consideration for lenders and investors, as it indicates the risk associated with extending credit or investing in that entity.

Regarding the other terms, "Fiscal Capacity" generally refers to the ability of a government to generate revenue to meet its expenditure obligations, but it does not explicitly indicate the willingness aspect, which is essential for financial obligations. "Financial Sustainability" focuses on the long-term viability of an entity's financial practices, ensuring that it can maintain its operations over time without exhausting resources. "Capital Reserves" refers to funds set aside for a specific purpose, often related to future investments or emergencies, rather than the broad evaluation of an entity's overall financial obligation management.

Understanding creditworthiness is essential for any entity that seeks financing, as it directly influences the terms and availability of credit in financial markets.