CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
In evaluating a sovereign's institutional effectiveness, which of the following is the least likely to be a strength supporting a higher credit rating?
Frequent unpredictable shifts in fiscal policy are least likely to support a higher rating. Predictable policy, an independent central bank and a history of honoring debt all signal strong institutions and willingness to pay, while policy unpredictability raises uncertainty about future debt servicing.
- AFrequent unpredictable shifts in fiscal policyCorrect
- BA transparent, independent central bank
- CA track record of honoring debt obligations
Explanation
Predictable policymaking, credible institutions and a record of repayment support creditworthiness. Frequent unpredictable fiscal policy shifts reduce confidence in future debt service and weigh on the rating.
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