Question 1

Which of the following variables can have a negative impact on the probability of rescheduling in the credit scoring model to estimate sovereign country risk exposure?

Accepted Answer

A) The total debt service ratio. 
B) The import ratio. 
C) The variance of export revenue. 
D) The investment ratio. 
E) Domestic money supply growth. 
A) The total debt service ratio. 
B) The import ratio. 
C) The variance of export revenue. 
D) The investment ratio. 
E) Domestic money supply growth.

Question 2

Which of the following is a reason why an international loan rather than a bond financing makes rescheduling more likely?

Accepted Answer

A) There are generally fewer FIs in any international lending syndicate compared to geographically dispersed bondholders. 
B) Many international loan syndicates comprise the same groups of FIs, which adds to FI cohesiveness in loan renegotiations. 
C) Many international loan contracts contain cross-default provisions that state if a country were to default on just one of its loans, all the other loans outstanding would also become in default. 
D) None of the above are like reasons. 
E) All are likely reasons. 
A) There are generally fewer FIs in any international lending syndicate compared to geographically dispersed bondholders. 
B) Many international loan syndicates comprise the same groups of FIs, which adds to FI cohesiveness in loan renegotiations. 
C) Many international loan contracts contain cross-default provisions that state if a country were to default on just one of its loans, all the other loans outstanding would also become in default. 
D) None of the above are like reasons. 
E) All are likely reasons.

Question 3

Which of the following is an attempt to measure the absence of governmental constraint on the production, consumption, and distribution of goods?

Accepted Answer

A) Euromoney Index. 
B) Index of Economic Freedom. 
C) Corruption Perceptions Index. 
D) Economist Intelligence Unit. 
E) Institutional Investor Index. 
A) Euromoney Index. 
B) Index of Economic Freedom. 
C) Corruption Perceptions Index. 
D) Economist Intelligence Unit. 
E) Institutional Investor Index.

Question 4

Which of the following describes debt moratoria?

Accepted Answer

A) Delay in repaying interest and/or principal on debt because of government prohibition of such action. 
B) Special reserves created on the balance sheet against which to write off bad loans. 
C) The official terminology for a sovereign loan rescheduling. 
D) Debt issued by a country that is swapped for an outstanding loan to that same country. 
E) Changing the contractual terms of a loan, such as its maturity and interest payments. 
A) Delay in repaying interest and/or principal on debt because of government prohibition of such action. 
B) Special reserves created on the balance sheet against which to write off bad loans. 
C) The official terminology for a sovereign loan rescheduling. 
D) Debt issued by a country that is swapped for an outstanding loan to that same country. 
E) Changing the contractual terms of a loan, such as its maturity and interest payments.

Question 5

Which of the following makes international loan rescheduling more likely than international bond rescheduling?

Accepted Answer

A) International loan contracts are not allowed to contain cross-default provisions. 
B) Typically there are more FIs in an international lending syndicate compared to the number of potential bondholders. 
C) Since World War II more international debt has been in the form of bonds. 
D) An international loan syndicate typically comprises the same FIs which allows greater cohesiveness for negotiations. 
E) All of the options. 
A) International loan contracts are not allowed to contain cross-default provisions. 
B) Typically there are more FIs in an international lending syndicate compared to the number of potential bondholders. 
C) Since World War II more international debt has been in the form of bonds. 
D) An international loan syndicate typically comprises the same FIs which allows greater cohesiveness for negotiations. 
E) All of the options.

Question 6

Euromoney Country Risk Scores (ECR) is an online community of economic and political experts that provide real time scores in 15 categories that relate to financial, geographic, and racial risk.

Accepted Answer

A) True 
 B)False

Question 7

In the statistical modeling of the country risk analysis, the investment ratio is considered to have a negative impact on the probability of rescheduling because the larger expenditures on investment infrastructure leaves less funds for debt payment.

Accepted Answer

A) True 
 B)False

Question 8

Multiyear restructuring agreements (MYRAs) involves the rescheduling of debt payments of foreign governments.

Accepted Answer

A) True 
 B)False

Question 9

By rescheduling its debt, a borrower raises the present value of its future payments in hard currencies.

Accepted Answer

A) True 
 B)False

Question 10

The larger the import ratio of a country; the higher is the probability that the country will have to schedule its debt payments.

Accepted Answer

A) True 
 B)False

Question 11

International loan contracts that contain cross-default provisions allow the country to select specific lenders for special default treatment.

Accepted Answer

A) True 
 B)False

Question 12

Lenders may find it costly to reschedule non-accruing sovereign country debt because

Accepted Answer

A) it is politically embarrassing. 
B) of tax reasons. 
C) they might be subject to greater regulatory attention. 
D) it is detrimental to maintaining good customer relations. 
E) bankruptcy costs are high. 
A) it is politically embarrassing. 
B) of tax reasons. 
C) they might be subject to greater regulatory attention. 
D) it is detrimental to maintaining good customer relations. 
E) bankruptcy costs are high.

Question 13

The total debt service ratio of a country should be negatively related to the probability of rescheduling.

Accepted Answer

A) True 
 B)False

Question 14

The Institutional Investor Index is based on

Accepted Answer

A) spread of the required interest rate on a country's debt over LIBOR. 
B) a number of economic and political factors weighted according to their relative importance in determining country risk problems. 
C) surveys of the loan officers of major multinational banks. 
D) combined economic and political risk on a 10-point (maximum) scale. 
E) key economic ratios for each regional grouping. 
A) spread of the required interest rate on a country's debt over LIBOR. 
B) a number of economic and political factors weighted according to their relative importance in determining country risk problems. 
C) surveys of the loan officers of major multinational banks. 
D) combined economic and political risk on a 10-point (maximum) scale. 
E) key economic ratios for each regional grouping.

Question 15

Lenders often are willing to reschedule debt payments of foreign corporations to avoid forcing the borrower into outright bankruptcy.

Accepted Answer

A) True 
 B)False

Question 16

The following is an example of a credit scoring model to estimate the probability of debt rescheduling for country I: Pi= 0.25DSRi+ 0.17IRi- 0.03 INVRi+ 0.84VAREXi+ 0.93 MGi
Where Pi is the probability of rescheduling country I's debt; DSR is the country's total debt service ratio; IR is the country's import ratio; INVR is the country's investment ratio; VAREX is the country's variance of export revenue; and MG is the country's rate of growth of the domestic money supply.
According to this model, An FI would be most likely to lend to a country with

Accepted Answer

A) a low total debt service ratio. 
B) a high import ratio. 
C) a high investment ratio. 
D) a low variance of export revenue. 
E) a small rate of growth of the domestic money supply. 
A) a low total debt service ratio. 
B) a high import ratio. 
C) a high investment ratio. 
D) a low variance of export revenue. 
E) a small rate of growth of the domestic money supply.

Question 17

Under the doctrine of sovereign immunity, creditors cannot force repayment of the debt.

Accepted Answer

A) True 
 B)False

Question 18

In the LCD and EM debt markets, sovereign bonds have historically been issued in foreign currencies.

Accepted Answer

A) True 
 B)False

Question 19

From the perspective of the lending FI, the risk of a well-diversified portfolio of loans should be less than weighted average risk of the individual loans.

Accepted Answer

A) True 
 B)False

Question 20

One advantage of swapping a sovereign loan for a bond is the capability to sell the bond in the secondary market.

Accepted Answer

A) True 
 B)False

Exam 14: Sovereign Risk

Which of the following variables can have a negative impact on the probability of rescheduling in the credit scoring model to estimate sovereign country risk exposure?

Which of the following is a reason why an international loan rather than a bond financing makes rescheduling more likely?

Which of the following is an attempt to measure the absence of governmental constraint on the production, consumption, and distribution of goods?

Which of the following describes debt moratoria?

Which of the following makes international loan rescheduling more likely than international bond rescheduling?

Euromoney Country Risk Scores (ECR) is an online community of economic and political experts that provide real time scores in 15 categories that relate to financial, geographic, and racial risk.

In the statistical modeling of the country risk analysis, the investment ratio is considered to have a negative impact on the probability of rescheduling because the larger expenditures on investment infrastructure leaves less funds for debt payment.

Multiyear restructuring agreements (MYRAs) involves the rescheduling of debt payments of foreign governments.

By rescheduling its debt, a borrower raises the present value of its future payments in hard currencies.

The larger the import ratio of a country; the higher is the probability that the country will have to schedule its debt payments.

International loan contracts that contain cross-default provisions allow the country to select specific lenders for special default treatment.

Lenders may find it costly to reschedule non-accruing sovereign country debt because

The total debt service ratio of a country should be negatively related to the probability of rescheduling.

The Institutional Investor Index is based on

Lenders often are willing to reschedule debt payments of foreign corporations to avoid forcing the borrower into outright bankruptcy.

Under the doctrine of sovereign immunity, creditors cannot force repayment of the debt.

In the LCD and EM debt markets, sovereign bonds have historically been issued in foreign currencies.

From the perspective of the lending FI, the risk of a well-diversified portfolio of loans should be less than weighted average risk of the individual loans.

One advantage of swapping a sovereign loan for a bond is the capability to sell the bond in the secondary market.

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Fintech Risks

Liability and Liquidity Management

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