Exam 14: Sovereign Risk

Sellers of LDC debt in secondary markets include small FIs wishing to disengage themselves from the LDC market.

For any given country risk variable, the greater the size of the systematic risk relative to the unsystematic risk, the less important the variable is to the lender.

A positive relationship is considered to exist between domestic money supply growth and the probability of rescheduling debt.

CRA statistical credit scoring models are very adept at capturing political risk events such as strikes, elections, corruption, etc.

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

FIs that lend to foreign entities often need to make provisions to their loan loss reserves.

The advantage to the lender (purchaser) of a Brady bond versus a loan to a foreign country is that U.S. Treasury bonds serve as collateral for Brady bonds.

A possible reason for the high systematic risk of the debt service ratio (DSR) in LDCs and EMs is

The following is an example of a credit scoring model to estimate the probability of debt rescheduling for country I: P_i = 0.25 DSR_i + 0.17 IR_i - 0.03 INVR_i + 0.84 VAREX_i + 0.93 MG_i Where P_iis the probability of rescheduling country I's debt; DSR is the country's 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. What is an important determinant of rescheduling probability if the country is providing several incentives to increase domestic savings?