1．Each of the following factors represents an economic risk that Standard and Poor's Corporation would consider in the rating of a sovereign debt credit EXCEPT:

A)   natural resource endowments.

B)   the level of industrial diversification.

C)   external security risks.

D)   living standards.

2．Does a national government have much or little control over its ability to generate enough currency to meet its local currency and foreign currency obligations?

A)   Local currency - much; foreign currency - little.

B)   Local currency - little; foreign currency - much.

C)   Local currency - much; foreign currency - much.

D)   Local currency - little; foreign currency - little.

3．Each of the following factors is analyzed relative to a country's willingness to repay its sovereign debt EXCEPT:

A)   the degree of economic and industrial diversification.

B)   the participation of the population in the political process.

C)   the integration of the economy in global trade and financial organizations.

D)   internal security risks.

4．Which of the following is a component of political risk?

A)   Integration in global trade and financial system.

B)   The existence of either a market or non-market economy.

C)   Governmental operating and budget balances.

D)   Tax competitiveness and tax-raising flexibility.

5.Political risk is best described as:

A)   an assessment of the ability of a national government to service its debt.

B)   an assessment of the willingness of a national government to satisfy its debt obligations.

C)   a quantitative evaluation of political factors that influence economic policies.

D)   a quantitative issue that distinguishes sovereigns from most other types of issuers.

1．Each of the following factors represents an economic risk that Standard and Poor's Corporation would consider in the rating of a sovereign debt credit EXCEPT:

A)   natural resource endowments.

B)   the level of industrial diversification.

C)   external security risks.

D)   living standards.

The correct answer was  C)

External security risk is a political risk factor, not an economic risk factor.

2．Does a national government have much or little control over its ability to generate enough currency to meet its local currency and foreign currency obligations?

A)   Local currency - much; foreign currency - little.

B)   Local currency - little; foreign currency - much.

C)   Local currency - much; foreign currency - much.

D)   Local currency - little; foreign currency - little.

The correct answer was  A)

A national government has more control over its ability to raise funds for local currency debt if it is willing to raise taxes or print money. A government has much less control in its ability to raise funds for foreign currency debt since it must purchase the foreign currency and has little control of its exchange rate.

3．Each of the following factors is analyzed relative to a country's willingness to repay its sovereign debt EXCEPT:

A)   the degree of economic and industrial diversification.

B)   the participation of the population in the political process.

C)   the integration of the economy in global trade and financial organizations.

D)   internal security risks.

The correct answer was  A)

The degree of economic and industrial diversification deals with the ability, not willingness, of a country to repay its sovereign debt.

4．Which of the following is a component of political risk?

A)   Integration in global trade and financial system.

B)   The existence of either a market or non-market economy.

C)   Governmental operating and budget balances.

D)   Tax competitiveness and tax-raising flexibility.

The correct answer was  A)

Political risk is the assessment of the form of government, extent of popular participation, orderliness of leadership succession, degree of consensus on economic policy objectives, integration in global trade and financial systems, and internal and external security risks.

5.Political risk is best described as:

A)   an assessment of the ability of a national government to service its debt.

B)   an assessment of the willingness of a national government to satisfy its debt obligations.

C)   a quantitative evaluation of political factors that influence economic policies.

D)   a quantitative issue that distinguishes sovereigns from most other types of issuers.

The correct answer was  B)

Political risk is a qualitative issue that addresses the willingness of a national government to pay its debt obligations.