Exam 14: Sovereign Risk

One problem with using country risk analysis (CRA)statistical credit scoring models to evaluate sovereign credit risk is the classification into only two possible outcomes.

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

Both buyers and sellers of LDC debt seem willing to participate in the LDC debt markets for the purpose of rebalancing the country risk exposure on their balance sheets.

Traditional country risk analysis (CRA)that is based on discriminant statistical models often suffers from problems of using data that is not current.

Which of the following describes debt moratoria?

Sovereign country risk exposure is a result of the FI's inability to be fully diversified.

Rescheduling loans is easier than renegotiating payments on bonds because the same FIs typically form loan syndicates that create cohesiveness in negotiations.

Sometimes banks received criticism because domestic governments take special political steps to reduce the probability that foreign borrowers will default or repudiate their debt contracts,an occurrence that could cause financial harm to the domestic banks.

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

In international finance,the import ratio is determined by dividing the value of imports by the

Which of the following observations concerning international loan cross-default provisions is NOT true?

If the credit risk of a foreign borrower is good,then the sovereign country risk is irrelevant.

The Economist Intelligence Unit is a rating of sovereign risk based on economic and political risk within a country.

The relationship of this variable with the probability of rescheduling is often disputed.

Both the debt service ratio and the import ratio typically have low systematic risk elements in a country risk analysis (CRA).

Rescheduling may cause the borrower to lose future borrowing opportunities for investment projects.

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

A lending decision to a firm in a foreign country should involve both a credit risk analysis and a sovereign risk analysis.

The following is an example of a credit scoring model to estimate the probability of debt rescheduling for country I: P_i = 0.25DSR_i + 0.17IR_i - 0.03 INVR_i + 0.84VAREX_i + 0.93 MG_i Where P_i is 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. According to this model,An FI would be most likely to lend to a country with

In the LCD and EM debt markets,sovereign bonds must be collateralized by domestically-issued government bonds.