B. Sovereign debt (issued bonds) are typically considered as proxies for risk free. Discuss the reasons why sovereign debt may not be risk free. Why might credit ratings agencies give different credit ratings to sovereign debt issued by the same country, depending on coupons denominated in domestic or foreign currency.

B. Sovereign debt (issued bonds) are typically considered as proxies for risk free. Discuss the reasons why sovereign debt may not be risk free. Why might credit ratings agencies give different credit ratings to sovereign debt issued by the same country, depending on coupons denominated in domestic or foreign currency.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter18: Long-term Debt Financing

Section: Chapter Questions

Problem 1ST

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Sovereign debt (issued bonds) are typically considered as proxies for risk free. 1. Discuss the reasons why sovereign debt may not be risk free. 2. Why might credit ratings agencies give different credit ratings to sovereign debt issued by the same country, depending on coupons denominated in domestic or foreign currency.
What is sovereign risk and what is the difference between rescheduling and repudiation? What is total debt service ratio and how is it calculated? Find the total debt service ratio of a country. See if you can also find an example of a country, or countries, that Western banks currently have exposure to.
Which of the following statements is false? A. The sovereign credit rating is a risk of a national government becoming unable to satisfy its loan obligations. B. Bond prices are inversely related to spreads. C. Issuer credit ratings are based on the overall creditworthiness of the firm. D. Liquidity is observed when there is a large difference between the offered sale price and the bid price.
a) What is the difference between a Foreign Bond and a Eurobond? Explain you answer with examples. b) Define Equity, Debt and Derivative. c) Describe the main types of non-bank Financial Institutions (FI). Give two examples of non-bank FI’s that are allowed to accept deposits.
Which one of the following is not a money market instrument? A. Treasury bill B. Negotiable certificate of deposit C. Commercial paper D. Treasury bond E. Eurodollar account Please explain all points without plagiarism Upvote ?sure
Why is credit risk management important and what are the features of a loan or debt instrument it determines? What is the difference between a spot loan and revolving loan? What is loan commitment? What are the different rates that have replaced LIBOR and in what countries/economic blocs are they used in? What are the borrower and market specific factors that impact the return on a loan for a financial institution? Are higher interest rates a restrictive or stimulative form of monetary policy and explain your answer?
True or false I. Floating/ variable rate bonds is one in which the interest payment changes with the market conditions. II. Junk or low rated bonds are rated BB or below.III. Eurobonds are bonds payable or denominated in the borrower’s currency, but sold outside the country of the borrower, usually by an international syndicate of investment bankers. IV. Treasury bonds carry the “full-faith-and-credit” backing of the government and investors consider them among the safest fixed-income investments in the world.
What is National Savings Certificate? A. Short-term U.S. government debt obligation B. A fixed - income investment scheme C. A financial product commonly sold by banks, thrift institutions, and credit unions D. An unsecured money market instrument
How does credit risk for a financial institution differs from default risk and What are the problems faced by a financial institution to measure credit risk?
A Eurobond is a Group of answer choices A. bond payable in the borrower's currency and sold inside the borrower's country. B. bond payable in the investor's currency but sold inside the borrower's country. C. bond payable in the borrower's currency but sold outside the borrower's country. D. bond payable in the investor's currency but sold outside the borrower's country.
Which of the statement is incorrect? i) Eurobond is a bond issued by an international investor and sold to borrowers in countries with currencies other than the currency in which the bond is denominated. ii) Foreign bond is a bond issued in a host country’s financial market, in the host country’s currency, by a foreign borrower. iii) Eurobond is a bond issued by an international borrower and sold to investors in countries with currencies other than the currency in which the bond is denominated. iv) In contrast, a foreign bond is a bond issued in a host country’s financial market, in the foreign currency, by a foreign borrower.
Which of the following is not a main core function of the financial system?a. Provide a payments system for the exchange of goods and services.b. Provide mechanisms to separate funds for smaller-scale investmentc. Provide the channels to transfer funds and economic resources across industriesd. Provide ways to manage uncertainty and mitigate risk According to the market segmentation theory of the term structure,a. the interest rate for bonds of one maturity is determined by the supply and demand for bonds of that maturity.b. bonds of one maturity are not substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities do not move together over time.c. investors' strong preference for short-term relative to long-term bonds explains why yield curves typically slope downward.d. only A and B of the above. Costs associated with the correspondent bank process include:a. Interestb. Currency conversion spreadc. Reputation costsd. Payroll costs