ikoreaii

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) The two general categories used by Standard & Poor’s in deriving sovereign ratings are economic risk and political risk.

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.

ikoreaii

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.

ikoreaii

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 degree of economic and industrial diversification.

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

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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.

ikoreaii

Which of the following is a component of political risk?

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

B) Integration in global trade and financial system.

C) Governmental operating and budget balances.

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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.

ikoreaii

Political risk is best described as:

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

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

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

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

Mechanic

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 public debt burden and debt service track record.

B) The country's balance of payments.

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.

Mechanic

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) living standards.

C) external security risks.

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

Mechanic

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) living standards.

C) external security risks.

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

Mechanic

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.

Mechanic

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

A) a sovereign bond issue.

B) an asset-backed securities issue.

C) a corporate bond issue.

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