LOS j: Contrast the credit analysis required for corporate bonds to that required for 1) asset-backed securities, 2) municipal securities, and 3) sovereign debt.

Q1. The assessment of which of the following types of debt require that the analyst use only qualitative factors, only quantitative factors or both qualitative and quantitative factors?

A)   Corporate bonds - both; sovereign debt - both; municipal debt - both.

B)   Corporate bonds - both; sovereign debt - both; municipal debt - quantitative.

C)   Corporate bonds - both; sovereign debt - qualitative; municipal debt - quantitative.

Q2. An evaluation of the quality of the servicer is a key consideration for which type of credit?

A)   Asset-backed securities.

B)   Municipal bonds.

C)   Corporate bonds.

Q3. A very similar analysis is required for which two types of debt?

A)   Sovereign debt and corporate bonds.

B)   Corporate bonds and asset-backed securities.

C)   Municipal bonds and sovereign debt.

Q4. Which of the following is least likely a factor used in assessing the credit quality of a national government's local currency debt?

A)   Balance of payments and structure of the external balance sheet.

B)   Income and economic structure.

C)   Monetary policy and inflation pressures.

Q5. An analysis of the credit quality of the collateral is most important in assessing the creditworthiness of:

A)   an asset-backed securities issue.

B)   a sovereign bond issue.

C)   a corporate bond issue.

LOS j: Contrast the credit analysis required for corporate bonds to that required for 1) asset-backed securities, 2) municipal securities, and 3) sovereign debt. fficeffice" />

Q1. The assessment of which of the following types of debt require that the analyst use only qualitative factors, only quantitative factors or both qualitative and quantitative factors?

A)   Corporate bonds - both; sovereign debt - both; municipal debt - both.

B)   Corporate bonds - both; sovereign debt - both; municipal debt - quantitative.

C)   Corporate bonds - both; sovereign debt - qualitative; municipal debt - quantitative.

Correct answer is A)

Corporate, sovereign, and municipal debt all require quantitative and qualitative elements of analysis.

Q2. An evaluation of the quality of the servicer is a key consideration for which type of credit?

A)   Asset-backed securities.

B)   Municipal bonds.

C)   Corporate bonds.

Correct answer is A)

The quality of the seller/servicer is critical for the assessment of asset-backed securities.

Q3. A very similar analysis is required for which two types of debt?

A)   Sovereign debt and corporate bonds.

B)   Corporate bonds and asset-backed securities.

C)   Municipal bonds and sovereign debt.

Correct answer is A)

The analysis of sovereign debt is actually very similar to that of corporate debt. Both are concerned with character, capacity, and capital as well as availability and the quality of financial reporting.

Q4. Which of the following is least likely a factor used in assessing the credit quality of a national government's local currency debt?

A)   Balance of payments and structure of the external balance sheet.

B)   Income and economic structure.

C)   Monetary policy and inflation pressures.

Correct answer is A)

In assessing the credit quality of local currency debt, only domestic government policies that emphasize fostering or impeding timely debt service are considered. Only for foreign currency debt will credit analysis focus on the interaction of domestic and foreign government policies as measured by a country's balance of payments and the structure of its external balance sheet.

Q5. An analysis of the credit quality of the collateral is most important in assessing the creditworthiness of:

A)   an asset-backed securities issue.

B)   a sovereign bond issue.

C)   a corporate bond issue.

Correct answer is A)

Analyzing the credit quality of the collateral is important in the issuance of asset-back securities.

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