CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
Compared with a corporate bond default, recovery for creditors after a sovereign default is most likely to depend on:
Recovery depends mainly on the sovereign's willingness to pay and on negotiations with creditors. Sovereign immunity and the absence of a standard bankruptcy process mean creditors cannot easily seize assets or force liquidation, unlike in corporate defaults.
- Athe sovereign's willingness to pay and negotiations with creditors, since creditors cannot easily seize assetsCorrect
- Ba court-supervised liquidation of the sovereign's assets under a standard bankruptcy code
- Cthe sale of collateral that always secures sovereign bonds
Explanation
Sovereign immunity and the lack of a universal bankruptcy regime mean creditors cannot force liquidation. Recovery rests on negotiation and the government's willingness to pay. Options B and C describe corporate-style mechanisms that generally do not apply.
Did you get it right without looking?
One question tells you little. A timed set on Credit Analysis for Government Issuers shows your real accuracy, how long you take and where you lose marks.
More Credit Analysis for Government Issuers questions
- A sovereign's external debt is mainly in foreign currency. Its central bank reserves are modest, its current account deficit is widening and…
- A sovereign restructures its external bonds by extending maturities and cutting coupons but leaving the principal unchanged. This restructur…
- Which of the following developments would an analyst most likely view as a weakening of a sovereign's external position?
- A sovereign has a local-currency rating of A and a foreign-currency rating of BBB. The difference between the two ratings is most likely exp…
- Which statement about sovereign credit ratings from rating agencies is most accurate?
- An analyst compares two sovereigns with similar GDP per capita. Country X has a debt-to-GDP ratio of 40% mostly held by domestic investors i…