[2008] Topic 40: Sovereign Risk 相关习题 difference, government, political, currency, exchange

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AIM 1: Describe the difference between credit risk and sovereign risk and define debt repudiation and debt rescheduling.

1、Simran is a small Caribbean country that depends on sugar as its primary export. The risk of the Simran government deciding that it will not pay its foreign currency loan is an example of:

A) political risk.

B) foreign exchange risk.

C) downgrade risk.

D) sovereign risk.

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The correct answer is D

The risk of a sovereign government willingly confiscating assets, freezing assets, or not fulfilling its obligations is called sovereign risk. Political risk is the willingness and ability of a government to enforce its constitution and laws. Foreign exchange risk is the risk of fluctuations in foreign currency values. Downgrade risk is a component of credit risk that deals with a major credit rating agency giving a lower credit rating to a corporate debt issuer.

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2、Which of the following would be considered a sovereign risk?

A) An international firm refuses to make any further debt repayments to outside creditors.

B) An international firm refuses to allow legal remedies to be offset in the international bankruptcy courts.

C) A foreign country assesses a domestic bank and refuses to allow a firm in their country to borrow from the domestic bank.

D) A foreign country refuses to allow any further debt repayment to be made to outside creditors.

aianjie

 

The correct answer is D

Sovereign risk is the risk of a foreign government limiting or preventing domestic borrowers from repaying debt; it is independent of the credit quality of an individual borrower. An international bankruptcy court doesn’t exist.

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3、Cross-default provisions:

A) allow a foreign country to obtain special default treatment from bond underwriters.

B) prevent a country from choosing a group of weak lenders for special default treatment.

C) state that a foreign firm cannot elect to default on an outstanding loan when the sovereign country has defaulted.

D) prevent a country from choosing to default to domestic lenders.

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The correct answer is B

Cross-default provisions address loans and state that if a country were to default on just one of its loans, all other outstanding loans would automatically be in default as well. Cross-default clauses prevent a country from choosing a group of weak lenders for special default treatment.

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4、Many international loan contracts contain cross-default provisions to prevent sovereigns from:

A) favoring only those lenders who reschedule debt payments.

B) canceling their own obligations while seeking to collect from others.

C) taking advantage of weak creditors. 

D) moving valuable assets to third countries, out of the reach of creditors. 

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The correct answer is C

Cross-default provisions treat a default on one loan as a default on all. This keeps sovereigns from defaulting on obligations to weak creditors and forcing concessions from them.

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5、When a sovereign lender defaults on its debt and can negotiate a complete cancellation, it is referred to as a:

A) multiyear restructuring agreement.

B) debt rescheduling.

C) debt amnesty.

D) debt repudiation.

aianjie

 

The correct answer is D

Debt repudiation is an unequivocal cancellation of all current and future foreign debt and equity obligations of a borrower.