Question 1

Debt moratorium refers to a:

Accepted Answer

A) clause that allows the lender to call in the debt during a particular period 
B) delay in repaying interest and/or principal on debt 
C) clause that allows the lender to charge higher interest if debt is not repaid in time 
D) clause that allows the borrower to repay debt early

Question 2

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 3

Which of the following is true of Brady bonds?

Accepted Answer

A) They are uncollateralised. 
B) They have a shorter maturity and a higher than promised coupon (yield) than the original sovereign loans. 
C) The benefit from Brady bond is the 'saving' from lower interest spreads required on such bonds. 
D) Their value partly reflects the value of collateral underlying the principal and/or interest on the issue.

Question 4

Which of the following statements is true?

Accepted Answer

A) Debt-for-equity swap programs appear to enhance LDC debt prices. 
B) Debt-for-equity swap programs appear to have no impact on LDC debt prices. 
C) Debt-for-equity swap programs appear to depress LDC debt prices. 
D) Debt-for-equity swaps are not available for traded LDC debt.

Question 5

An FI would be most likely to lend to a country with a:

Accepted Answer

A) low debt service ratio 
B) high import ratio 
C) low investment ratio 
D) large variance of export revenue

Question 6

Changing the contractual terms of a loan, such as its maturity and interest payments is referred to as:

Accepted Answer

A) debt repudiation 
B) debt rescheduling 
C) refinancing 
D) reinvesting

Question 7

Which of the following statements is true?

Accepted Answer

A) There should be a positive relationship between domestic money supply growth and the probability of rescheduling. 
B) There should be a negative relationship between domestic money supply growth and the probability of rescheduling. 
C) There should be no relationship between domestic money supply growth and the probability of rescheduling. 
D) The relationship between domestic money supply growth and the probability of rescheduling depends on a set of variables relating to the borrowing country.

Question 8

Debt-for-equity swaps provide:

Accepted Answer

A) advantages to the less-developed country (LD
C)  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

Question 9

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

Accepted Answer

A) International loan contracts are not allowed to contain cross-default provisions. 
B) Typically there are more FIs in an international lending syndicate compared to the number of potential bondholders. 
C) Since World War II more international debt has been in the form of bonds. 
D) An international loan syndicate typically comprises the same FIs which allows greater cohesiveness for negotiations.

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

The Euromoney Country Risk Index is based on the spread in the Euromarket of the required interest rate on a country's debt over the LIBOR.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

If the country's interest and amortisation obligations are equal to $2 billion and exports are equal to $10 billion then the country's debt service ratio is equal to:

Accepted Answer

A) 10 
B) 8 
C) 2 
D) 0.2

Question 15

Lenders may find it costly to reschedule non-accruing sovereign country debt because:

Accepted Answer

A) it is politically embarrassing 
B) bankruptcy costs are high 
C) they might be subject to greater regulatory attention 
D) it is detrimental to maintaining good customer relations

Question 16

Debt repudiation is beneficial to the:

Accepted Answer

A) International Monetary Fund 
B) World Bank 
C) borrower 
D) lender

Exam 12: Sovereign Risk

Debt moratorium refers to a:

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

Which of the following is true of Brady bonds?

Which of the following statements is true?

An FI would be most likely to lend to a country with a:

Changing the contractual terms of a loan, such as its maturity and interest payments is referred to as:

Which of the following statements is true?

Debt-for-equity swaps provide:

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

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

The Euromoney Country Risk Index is based on the spread in the Euromarket of the required interest rate on a country's debt over the LIBOR.

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

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.

If the country's interest and amortisation obligations are equal to $2 billion and exports are equal to $10 billion then the country's debt service ratio is equal to:

Lenders may find it costly to reschedule non-accruing sovereign country debt because:

Debt repudiation is beneficial to the: