65. High rates of domestic inflation impact the credit scoring model of sovereign country risk exposure through
which of the following variables?
66. The allocation of country resources between present and future consumption is measured by which of the
following variables of the credit scoring model of sovereign country risk exposure?
67. Each of the variables in the credit scoring model of sovereign country risk
68. What is the approximate yield on a 20-year 10 percent annual coupon LDC bond selling at 75 cents on the
dollar?
69. What is the approximate yield on a 20-year 10 percent annual coupon LDC bond selling at 25 cents on the
dollar?
70. Which of the following makes international loan rescheduling more likely than bond rescheduling?
71. The statistical results of the country risk analysis models
72. A possible reason for the high systematic risk of DSR is
73. A possible reason for the high systematic risk of VAREX is
74. Which of the following is an attempt to measure the absence of governmental constraint on the production,
consumption, and distribution of goods?
75. Which of the following is not a reason why international loans are more likely to be rescheduled than
international bonds?
76. Which of the following is a benefit to the borrower in a loan rescheduling?
77. Which of the following is a benefit to the lender in a loan rescheduling?
78. Which of the following is the largest segment in the secondary market for sovereign debt?
79. Which of the following is true of Brady bonds?
80. Which of the following is true of sovereign bonds?
81. Which of the following are normally traded at very deep discounts from 100 percent?
82. What is an important determinant of rescheduling probability if inflation is a prime concern?
83. What is an important determinant of rescheduling probability if the country is providing several incentives
to increase domestic savings?
84. An FI would be most likely to lend to a country with
85. An FI would be least likely to lend to a country with
86. If two countries are identical in all respects except that country A’s debt service ratio is 1.5, country B’s debt
service ratio is 1.25, country A’s import ratio is 0.75, and country B’s import ratio is 0.90, which country poses
the least sovereign country risk?
87. Two countries are identical in all respects except that country A’s debt service ratio is 1.5, while country B’s
debt service ratio is 1.25, and country A’s import ratio is 0.75, while country B’s import ratio is 0.90. Based only
on the effect of these two variables, compare the likely price of debt issued by country A to the likely price of
debt issued by country B if both debt issues have the same maturity and coupon payments. Both debt issues are
trading in the secondary market.
88. Two countries are identical in all respects except that country A’s rate of growth of the domestic money
supply (MG) is 33 percent, while country B’s MG is 25 percent, and country A’s variance of export revenue
(VAREX) is 3.75 percent, while country B’s VAREX is 10 percent. Based only on these two variables, which
country possesses the most sovereign country risk?
89. Two countries are identical in all respects except that country A’s rate of growth of the domestic money
supply (MG) is 33 percent, while country B’s MG is 25 percent, and country A’s variance of export revenue
(VAREX) is 3.75 percent, while country B’s VAREX is 10 percent. Based only on these two variables, compare
the prices of debt issued by country A to the price of debt issued by country B if both issues have the same
maturity and coupon payments. Both debt issues are trading in the secondary market.
90. The buyers of LDC loans often look to benefit from debt-equity swaps with the LDC for the purpose of
investment in the LDC.
91. Debt-equity swap investors are assured that their assets will not face the risk of future expropriation.
92. A disadvantage of debt-equity swaps to investors often is the prohibition of repatriating dividends for long
periods of time.
93. Commercial banks in the U.S. are not allowed to buy real equity or engage in commerce in foreign countries
by Federal Reserve Regulation K.
94. In a MYRA the lender bank generally receives a restructuring fee and a higher interest rate in exchange for
a longer maturity loan that has a grace period of no debt service payments.
95. Concessionality refers to the amount of book value the bank looses on a loan that has gone through a
multiyear restructuring agreement.
96. One advantage of MYRAs is that usually they are designed with an option that allows the lending FI to
choose the currency of repayment.
97. The more volatile are the currency exchange rates, the greater is the value of a currency option in a MYRA
to the borrower and the more costly it is to the lender.
98. The primary benefit of a debt for debt swap is the creation of a more marketable and liquid capital market
instrument.
99. If a two-year grace period is granted on a 10-year maturity, 15 percent annual coupon loan, previously
selling at par, what is the impact on the loan’s price?
100. If the cost of funds to the bank is 5 percent, what is the present value of the loan prior to the rescheduling?
101. What is the present value of the rescheduled loan to the bank if the cost of funds to the bank is 5 percent?
102. What is the concessionality of the above rescheduled loan if the cost of funds remains at 5 percent?
103. What should be the approximate up-front fee in order for the bank to have a concessionality of $0? The
present value of the loan before and after rescheduling is the same.
104. The price quote of 95-96 means that
105. If it purchases the swap, it has to convert the loan into Mexican pesos at the official exchange rate of
MP6.75/$. How many pesos will it have for investment in Mexico?
106. What is the effective exchange rate it gets on the debt-for-equity swap?
107. Which option should it select?
108. At what official exchange rate of conversion of the debt-for-equity swap will Lee Enterprises be indifferent
between the two options?