Question 1

Which of the following are normally traded at very deep discounts from 100 per cent?

Accepted Answer

A)   Restructured loans.
B)   Brady bonds.
C)   Sovereign bonds.
D)   Nonperforming loans. D

Question 2

LDC debt can be bought and sold in secondary markets.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is an adequate definition of a Brady bond?

Accepted Answer

A)   A bond issued by a less developed country that is swapped for an outstanding loan by that country.
B)   A bond issued by a less developed country that serves as collateral for an outstanding loan by that country.
C)   A bond issued by a less developed country that is issued in accordance with the terms of the Brady convention of 1973.
D)   A bond bought by a less developed country in order to stabilise the country's investments. A

Question 4

The Heritage Foundation defines 'economic freedom' as 'the absence of government coercion or constraint on the production, distribution or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself'.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true in relation to the Euromoney Index?

Accepted Answer

A)   The Euromoney Index rates country risk by combined economic and political risk on a maximum of 100 points scale.
B)   The Euromoney Index is based on the spread in the Euromarket of the required interest rate on a country's debt over the LIBOR, adjusted for the volume and maturity of the issue.
C)   The Euromoney Index weighs subjective scores allocated by rating officers by the exposure of each bank to the country in question.
D)   None of the listed options are correct.

Question 6

Concessionality refers to the amount a bank gives up in:

Accepted Answer

A)   future value terms as a result of a multi-year restructuring agreement (MYR
A)  ..
B)   nominal value terms as a result of a MYRA.
C)   present value terms as a result of a MYRA.
D)   compounded value terms as a result of a MYRA.

Question 7

Which of the following are risk factors that might influence the variability of a country's export revenues?

Accepted Answer

A)   quality risk
B)   quantity risk
C)   country risk
D)   basis risk

Question 8

Multi-year restructuring agreement (MYRA) is the official term for the:

Accepted Answer

A)   rescheduling of a sovereign loan.
B)   repudiation of a sovereign loan.
C)   repayment of a sovereign loan.
D)   re-evaluation of a sovereign loan.

Question 9

The sovereign risk assessment methods most commonly used by large FIs are logit and probit models.

Accepted Answer

A) True 
 B)False

Question 10

The investment ratio measures the degree to which a country is allocating resources to:

Accepted Answer

A)   real investments rather than to consumption.
B)   consumption rather than real investments.
C)   real investments rather than debt repayments.
D)   real debt repayments rather than to real investments.

Question 11

What are the major advantages and disadvantages of using scoring models to assess country risk?

Accepted Answer

The answer of What are the major advantages and disadvantages...

Question 12

Some factors that are built into Multi-year restructuring agreements (MYRAs) are:

Accepted Answer

A)   option and guarantee features that don't allow the lender and buyer (borrower)  to choose the currency for repayment of interest and principal.
B)   option and guarantee features that allow the lender and buyer (borrower)  to choose the currency for repayment of interest and principal.
C)   the maturity of the loan is typically shortened to reduce interest and principal payments.
D)   There are no fees charged for the restructuring of the loan.

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a country risk assessment service available to outside investors?

Accepted Answer

A)   The Euromoney Index.
B)   The Economist Intelligence Unit.
C)   The Sovereign Risk Index.
D)   The Institutional Investor Index.

Question 15

Which of the following statements is true?

Accepted Answer

A)   There should be a positive relationship between the size of a country's investment ratio and the probability of rescheduling.
B)   There should be a negative relationship between the size of a country's investment ratio and the probability of rescheduling.
C)   There should be no relationship between the size of a country's investment ratio and the probability of rescheduling.
D)   The relationship between the size of a country's investment ratio and the probability of rescheduling depends on a set of variables relating to the borrowing country.

Question 16

Which of these are major segments of the secondary market for LCD debt?

Accepted Answer

A)   performing loans
B)   sovereign bonds
C)   non-performing loans
D)   sovereign bonds, performing loans and non-performing loans

Question 17

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 an LDC that is swapped for an outstanding loan to that LDC.

Question 18

Which of the following statements is true?

Accepted Answer

A)   The most common approach to evaluating country risk among large FIs is to develop sovereign country risk scoring models based on economic ratios for each country.
B)   The most common approach to evaluating country risk among large FIs is to develop sovereign country risk scoring models based on political ratios for each country.
C)   The most common approach to evaluating country risk among large FIs is to develop sovereign country risk scoring models based on industry performance ratios for each country.
D)   The most common approach to evaluating country risk among large FIs is to develop sovereign country risk scoring models based on financial performance ratios for each country.

Question 19

One reason why debt rescheduling is easier than debt repudiation is that many international loan contracts contain cross-default provisions that serve to prevent a country from selecting a group of weak lenders for special default treatment.

Accepted Answer

A) True 
 B)False

Question 20

Debt repudiation is the:

Accepted Answer

A)   outright cancellation of all current debt obligations by a borrower.
B)   outright cancellation of all future debt obligations by a borrower.
C)   outright cancellation of all current and future debt obligations by a borrower.
D)   changing of the contractual terms of all current debt obligations by a borrower.

Exam 12: Sovereign Risk

Which of the following are normally traded at very deep discounts from 100 per cent?

LDC debt can be bought and sold in secondary markets.

Which of the following is an adequate definition of a Brady bond?

The Heritage Foundation defines 'economic freedom' as 'the absence of government coercion or constraint on the production, distribution or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself'.

Which of the following statements is true in relation to the Euromoney Index?

Concessionality refers to the amount a bank gives up in:

Which of the following are risk factors that might influence the variability of a country's export revenues?

Multi-year restructuring agreement (MYRA) is the official term for the:

The sovereign risk assessment methods most commonly used by large FIs are logit and probit models.

The investment ratio measures the degree to which a country is allocating resources to:

What are the major advantages and disadvantages of using scoring models to assess country risk?

Some factors that are built into Multi-year restructuring agreements (MYRAs) are:

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.

Which of the following is not a country risk assessment service available to outside investors?

Which of the following statements is true?

Which of these are major segments of the secondary market for LCD debt?

Which of the following describes debt moratoria?

Which of the following statements is true?

One reason why debt rescheduling is easier than debt repudiation is that many international loan contracts contain cross-default provisions that serve to prevent a country from selecting a group of weak lenders for special default treatment.

Debt repudiation is the: