[ 2009 FRM Sample Exam ] Quantitative Analysis Q7 default, statements, all, following

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7. In the context of evaluating sovereign risk, which of the following statements is incorrect?

A. Bankruptcy law does not typically protect investors from sovereign risk

B. Debt repudiation is a postponement of all current and future foreign debt obligations of a borrower

C. Debt rescheduling occurs when a group of creditors declares a moratorium on debt obligations and seeks to reschedule terms

D. Sovereign risk can be a cause of default in a non-governmental borrower of high credit quality

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Correct answer is B

B is incorrect. Debt repudiation is a cancellation - not a postponement.

A, C & D: All are correct statements.

Reference:  Saunders, Chapter 16. John B. Caouette, Edward I. Altman, and Paul Narayanan, Chapter 22.

Type: Credit Risk.