CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
Which of the following is most likely to increase a sovereign's willingness to honor its foreign currency debt?
Large expected gains from continued access to international capital markets most likely increase willingness to pay, because default would forfeit those benefits. A history of repudiation and weak contract-respecting institutions signal lower willingness to honor debt.
- AA history of repudiating debt after changes in government
- BLarge expected gains from continued access to international capital marketsCorrect
- CWeak domestic institutions with little respect for contracts
Explanation
Willingness to pay rises when default would impose high costs, such as loss of market access. Repudiation history and weak institutions signal lower willingness to pay.
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
- In sovereign credit analysis, a government that has issued bonds under local law in its own currency is most likely to find that, compared w…
- Sovereign bonds issued with collective action clauses (CACs) are most likely to:
- When assessing the credit quality of a general obligation bond issued by a city, which factor is an analyst most likely to consider as a key…
- A rating agency assigns a sovereign two ratings: one for debt issued in local currency and one for debt issued in foreign currency. The loca…
- Compared with a sovereign issuer, a non-sovereign government issuer such as a municipality is most likely to have:
- A sovereign's government debt is 90% of GDP, and its interest payments consume a large share of tax revenue. Which additional characteristic…