CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
In assessing a sovereign issuer's creditworthiness, the ability to pay is most likely influenced by which of the following?
A sovereign's ability to pay is most influenced by its tax base and economic growth prospects, because these determine the revenue available to service debt. Features such as currency design or diplomatic presence do not affect its capacity to meet obligations.
- AThe issuer's tax base and economic growth prospectsCorrect
- BThe color of its currency notes
- CThe number of its diplomatic missions
Explanation
Ability to pay depends on the government's capacity to raise revenue and service debt, which rests on its tax base, economic size and growth. The other options have no bearing on repayment capacity.
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