Reading 51: General Principles of Credit Analysis -LOS i 习题 2010, class, describe, assigned, government

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Session 14: Fixed Income: Valuation Concepts
Reading 51: General Principles of Credit Analysis

LOS i: Discuss the key considerations used by Standard & Poor’s in assigning sovereign ratings and describe why two ratings are assigned to each national government.

 

 

 

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) Much control over both currencies.

B) Little control over either currencies.

C) Much control over one currency only.

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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.

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What is the key difference between a local currency debt rating and a foreign currency debt rating?

A) A foreign currency debt rating relies on the country's ability to generate appropriate foreign currency cash flows via its trade flows.

B) Local currency debt ratings are uncorrelated with the country's foreign currency debt ratings.

C) A foreign currency debt rating depends primarily upon the economic infrastructure of the economy and the level of education and living standards in the country.

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A foreign currency debt rating relies on the country's ability to generate appropriate foreign currency cash flows via its trade flows.

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Which of the following is a component of political risk?

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

B) Governmental operating and budget balances.

C) Integration in global trade and financial system.

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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.

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

A) internal security risks.

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

C) the degree of economic and industrial diversification.

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

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Which of the following is the primary concern of a rating agency when rating the foreign currency debt of a sovereign nation?

A) The government debt burden and debt service experience.

B) Political stability and the extent of the participation of the populace in the political process.

C) The country's balance of payments and its ability to generate the appropriate foreign currency cash flows.

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The key to the evaluation of the foreign currency debt of the nation is the country's balance of payments and its ability to generate the appropriate foreign currency cash flows.

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Which of the following statements regarding sovereign bond issues is least accurate?

A) Defaults are greater on local currency issues than foreign currency issues.

B) U.S. government debt is not rated by any nationally recognized rating agency.

C) There is a local currency rating and a foreign currency rating assigned to each national government.

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Defaults are greater on foreign currency issues because a national government has little control with respect to its exchange rate and must purchase foreign currency to repay its foreign currency obligation.

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Which of the following is least likely a factor used by Standard & Poor’s rating agency to assess the creditworthiness of a government’s foreign currency debt?

A) Net public debt.

B) Income and economic structure.

C) Country's balance of payments.

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For foreign currency debt, Standard & Poor analyzes a country’s balance of payments, net public debt, total net external debt and net external liabilities.

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Which of the following factors least likely represents an economic risk that Standard and Poor's Corporation would consider in the rating of a sovereign debt credit?

A) natural resource endowments.

B) external security risks.

C) living standards.

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

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Which of the following is NOT a factor used by Standard & Poor’s rating agency to assess the creditworthiness of a government’s local currency debt?

A) The country's balance of payments.

B) The public debt burden and debt service track record.

C) Degree of participation by the populace in the political process.

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Standard & Poor examines any government policies that could foster or interfere with timely debt service. These factors include the stability of political institutions and degree of popular participation in the political process, income and economic structure, fiscal policy, monetary policy, inflation, public debt burden, and debt service record.

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Which of the following is NOT a category used by Standard & Poor’s to derive their ratings on sovereign bond issues?

A) Economic growth prospects.

B) Capital market structure.

C) Price stability.

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The categories used to assess sovereign bond issues include: political risk, income and economic structure, economic growth prospects, fiscal flexibility, public debt burden, price stability, balance of payments flexibility, and external debt and liquidity.