This paper investigates the role of
currency overvaluation in a model of foreign debt using the panel data of 80 countries
during the period of 1990 - 1999. The paper shows that there is a significant effect of
currency overvaluation on the level of debt. In addition, by using the Granger causality test, the paper shows that both the level of debt and currency overvaluation are mutually causative to each other. The paper makes extensive use of graphs and figures.