Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Sovereign risk is largely independent of the credit standing of an individual borrower operating in that country.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

The answer of Multi-year restructuring agreement (MYRA) is the official...

Question 4

Debt rescheduling is the least common form of sovereign risk event.

Accepted Answer

A) True 
 B)False

Question 5

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 6

A possible reason for the high systematic risk of debt service ratio (DSR) is the:

Accepted Answer

A) tendency of world commodity prices to reflect non-similar economic conditions. 
B) sensitivity of this ratio to rising nominal and real interest rates in the developed countries. 
C) tendency of prices and world demands for commodities to reflect simultaneously economic conditions. 
D) discretionary nature of money supply growth for LDC governments.

Question 7

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

Accepted Answer

A) The Institutional Investor Index rates country risk by combined economic and political risk on a maximum of 100 points scale. 
B) The Institutional Investor Index is based on the spread in the Euromarket of the required interest rate on a country's debt over the LIBOR. 
C) The Institutional Investor 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 8

What are the costs and benefits of rescheduling for the lenders and for the borrowers?

Accepted Answer

The answer of What are the costs and benefits of...

Question 9

The term LIBOR stands for the London Interbank:

Accepted Answer

A) offered rate and is the rate charged on prime interbank loans on the Eurodollar market. 
B) obligor rate and is the rate charged on prime interbank loans on the Eurodollar market. 
C) offered rate and is the rate charged on interbank loans worldwide. 
D) obligor rate and is the rate charged on interbank loans worldwide.

Question 10

Which of the following statements is true?

Accepted Answer

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

Question 11

Debt repudiations were more common before WWII compared to now.

Accepted Answer

A) True 
 B)False

Question 12

A possible reason for the high systematic risk of export revenue variance (VAREX) is the:

Accepted Answer

A) tendency of world commodity prices to reflect non-similar economic conditions. 
B) sensitivity of this ratio to rising nominal and real interest rates in the developed countries. 
C) tendency of prices and world demands for commodities to reflect simultaneously economic conditions. 
D) discretionary nature of money supply growth for LDC governments.

Question 13

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 14

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 15

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 16

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 17

Debt-for-equity swaps provide:
A)advantages to the less-developed country (LDC) in that they gain new debt in exchange for equity.
B)advantages to LDCs as they are able to acquire hard currency debt for local currency equity.
C)disadvantages to the LDC as they are able to retire expensive hard currency debt for local currency equity.
D)advantages to LDCs as they are able to retire expensive hard currency debt for local currency equity.

Accepted Answer

The answer of Debt-for-equity swaps provide:
A)advantages to the less-developed country...

Question 18

Which of the following are potential problems associated with using credit scoring as a tool for assessing country risk?

Accepted Answer

A) Measurement of key variables. 
B) Political risk factors and incentive aspects. 
C) Political risk factors and portfolio aspects. 
D) Measurement of key variables, political risk factors, portfolio aspects and incentive aspects.

Question 19

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.

Question 20

Which of the following statements is true in relation to the economic freedom index?

Accepted Answer

A) The economic freedom index includes measures such as prosperity rights regulation, capital flows and black market activities. 
B) The economic freedom index measures a country's economic freedom on a scale of 1 to 5, whereby a scale of 5 implies policies most conducive to economic freedom, while a score of 1 implies the least conducive to economic freedom. 
C) The economic freedom index measures a country's economic freedom on a scale of 1 to 10, whereby a scale of 1 implies policies most conducive to economic freedom, while a score of 10 implies the least conducive to economic freedom. 
D) The economic freedom index does not exist.

Exam 12: Sovereign Risk

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

Sovereign risk is largely independent of the credit standing of an individual borrower operating in that country.

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

Debt rescheduling is the least common form of sovereign risk event.

Which of the following describes debt moratoria?

A possible reason for the high systematic risk of debt service ratio (DSR) is the:

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

What are the costs and benefits of rescheduling for the lenders and for the borrowers?

The term LIBOR stands for the London Interbank:

Which of the following statements is true?

Debt repudiations were more common before WWII compared to now.

A possible reason for the high systematic risk of export revenue variance (VAREX) is the:

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

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

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

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.

Which of the following are potential problems associated with using credit scoring as a tool for assessing country risk?

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

Which of the following statements is true in relation to the economic freedom index?