CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
Which of the following factors is most likely to be assessed when an analyst evaluates a sovereign issuer's willingness to pay, as distinct from its ability to pay?
Institutional strength and track record of honoring debt relate to willingness to pay, because willingness reflects political and legal factors and past repayment behavior. Foreign exchange reserves and income growth measure the economic capacity to service debt, which is ability to pay rather than willingness.
- ASize of foreign exchange reserves
- BInstitutional strength and track record of honoring debtCorrect
- CGrowth rate of per capita income
Explanation
Willingness to pay concerns political and institutional factors such as the rule of law, policy stability and past repayment behavior. Reserves and income growth are indicators of the ability to pay, which is a separate part of sovereign analysis.
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