Exam 14: Sovereign Risk

The following is an example of a credit scoring model to estimate the probability of debt rescheduling: 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 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. If two countries are identical in all respects except that country A's total debt service ratio is 1.5, country B's total debt service ratio is 1.25, country A's import ratio is 0.75, and country B's import ratio is 0.90, which country poses the least sovereign country risk?

A possible reason for the high systematic risk of VAREX in LCDs and EMs is

Repudiation is an outright cancelation of all current and future debt obligations by a borrower.

Which of the following is a benefit to the borrower in a loan rescheduling?

The export revenue variance (VAREX) ratio tends to have high systematic risk elements in a country risk analysis (CRA).

A sovereign country's negative decisions regarding its debt obligations or the obligations of its public and private organizations may take on two forms: repudiation and rescheduling.

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

As recent economic conditions improved, trading volumes in the secondary market for LCD and EM debt reached approximately $6.5 trillion in 2011.

Through June of 2012, the cost of bailouts required to keep Greece's reform efforts moving forward and to remain part of the European Union totaled more than $480 billion.

The advantage to the borrowing country of a Brady bond versus a loan from an FI is the much longer maturity and thus the lower payment schedule of a Brady bond.

What is the approximate yield on a 20-year 10 percent annual coupon less developed country (LDC) bond selling at 75 cents on the dollar? (Choose the closest answer)

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.

In international finance, the total debt service ratio is found by dividing interest and amortization payments by the

High rates of domestic inflation impact the credit scoring model of sovereign country risk exposure through which of the following variables?

A foreign government's decision to keep a domestic corporation from making debt payments to outside investors automatically makes the corporation a bad credit risk for the investor.

Sovereign risk involves restrictions placed on borrowers and investors regarding the movement of funds into and out of a foreign country.

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.

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.

The Euromoney Country Risk Index for a given country currently is based on the

In international finance, the investment ratio is determined by dividing the value of real investment by the