Credit Analysis for Government Issuers

50 questions available

Sovereign Creditworthiness: Qualitative Factors5 min
Assessing a sovereign involves evaluating institutional and political frameworks. Key qualitative pillars include Government Institutions (predictability, rule of law), Fiscal Flexibility (capacity to manage debt and taxes), Monetary Effectiveness (independence and credibility of monetary policy), Economic Flexibility (resilience to shocks), and External Status (international standing). Sovereign immunity is a critical legal consideration.

Key Points

  • Government Institutions: Executive stability and willingness to pay.
  • Fiscal Flexibility: Ability to adjust revenue and expenditures.
  • Monetary Effectiveness: Credibility and financial system depth.
  • Sovereign Immunity: Legal limitation on forcing bankruptcy.
Sovereign Creditworthiness: Quantitative Factors and Ratios5 min
Quantitative analysis relies on hard data to measure fiscal and economic health. This includes analyzing Fiscal Strength via ratios like Debt-to-GDP and Interest-to-Revenue. Economic Stability is measured by Real GDP growth and per capita GDP. External Stability looks at foreign exchange reserves relative to GDP and external debt obligations.

Key Points

  • Fiscal Strength: Debt burden and debt affordability metrics.
  • Economic Stability: Real GDP growth, volatility, and scale.
  • External Stability: FX reserves, balance of payments, and external debt burden.
Non-Sovereign Credit Risk and Bond Types5 min
This section covers entities other than national governments, such as agencies, supranationals, and regional governments. It specifically contrasts General Obligation (GO) bonds, which rely on tax authority, with Revenue bonds, which rely on project specific income. Revenue bonds are noted for higher risk due to their narrower repayment source.

Key Points

  • Non-Sovereign Issuers: Agencies, Supranationals, Regional Governments.
  • GO Bonds: Unsecured, backed by full faith and credit (taxing power).
  • Revenue Bonds: Project-specific, higher risk, analyzed via debt service coverage.

Questions

Question 1

Which of the following is considered a qualitative factor regarding 'Government Institutions and Policy' in sovereign credit analysis?

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Question 2

What legal concept prevents investors from forcing a sovereign government to declare bankruptcy or liquidate assets?

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Question 3

Which factor is categorized under 'Monetary Effectiveness' in qualitative sovereign analysis?

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Question 4

Under 'Economic Flexibility', which of the following is a key assessment point?

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Question 5

Which ratio is used to measure 'Debt Burden' under Fiscal Strength?

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Question 6

A country has Government Interest Payments of 50 billion and Total Revenue of 250 billion. What is its Interest to Revenue ratio?

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Question 7

Which quantitative factor category includes 'Balance of Payments' and 'Currency Reserves'?

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Question 8

How is 'Real GDP Growth' calculated based on the provided text?

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Question 9

Which of the following describes 'Supranational Issuers'?

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Question 10

What is a primary characteristic of General Obligation (GO) Bonds?

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Question 11

Which metric is crucial for the risk assessment of Revenue Bonds?

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Question 12

What distinguishes 'Agencies' (Quasi-governmental bodies) in terms of credit rating?

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Question 13

In the context of Fiscal Strength, what does 'Debt Affordability' measure?

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Question 14

If a country has Real GDP of 100 in year T-1 and 105 in year T, what is the Real GDP Growth rate?

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Question 15

Which qualitative factor considers the 'Adaptability to Shocks'?

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Question 16

Which ratio measures the 'Size of Economy'?

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Question 17

What does 'Reserve Ratio' specifically calculate in the context of External Stability?

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Question 18

Which factor under 'Government Institutions and Policy' involves the predictable enforcement of contracts?

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Question 19

What is the primary risk associated with Revenue Bonds compared to General Obligation Bonds?

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Question 20

Which entity type typically issues debt to finance specific policy goals and is established by the government?

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Question 21

Which ratio measures the volatility of economic growth?

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Question 22

In the 'External Debt Due' calculation, what is the numerator?

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Question 23

Which qualitative factor includes 'Geopolitical Risk'?

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Question 24

Regional Government Issuers are typically:

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Question 25

Which factor falls under 'Fiscal Flexibility' in qualitative analysis?

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Question 26

What does 'LT External Debt' usually stand for in the context of 'External Debt Burden'?

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Question 27

Which of the following is considered a source of Non-Sovereign Government Debt?

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Question 28

Calculate the Debt to GDP ratio if General Government Debt is 500 million and GDP is 2,000 million.

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Question 29

Which quantitative factor category includes 'Cyclicality'?

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Question 30

What does 'Global Currency Status' contribute to in credit analysis?

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Question 31

Which of the following is an example of a 'Financial System Development' factor?

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Question 32

What is 'Fiscal Discipline' primarily concerned with?

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Question 33

General Obligation (GO) bonds are evaluated based on:

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Question 34

Which ratio includes 'General Government Debt' in the numerator?

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Question 35

Which category of non-sovereign issuer enjoys high credit ratings due to collective support from multiple nations?

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Question 36

The 'Debt to Revenue' ratio is calculated as:

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Question 37

Which qualitative factor involves 'Stable, Predictable Executive, Legislative and Judicial' institutions?

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Question 38

What is the purpose of the 'Per Capita GDP' metric?

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Question 39

Which type of non-sovereign debt is 'backed by the government for specific policy goals'?

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Question 40

What does 'FX Reserves to GDP' measure?

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Question 41

Which factor is NOT a component of 'Monetary Effectiveness'?

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Question 42

If a government has 10 billion in interest payments and a GDP of 500 billion, what is the Interest to GDP ratio?

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Question 43

The 'Debt Service Coverage Ratio' is most relevant for which type of bond?

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Question 44

Which qualitative factor considers 'Competitiveness'?

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Question 45

What does 'Interest to GDP' measure?

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Question 46

A 'Revenue Bond' is typically issued for:

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Question 47

What is 'External Debt Burden' defined as in the quantitative factors?

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Question 48

Which factor falls under 'Fiscal Strength' in the quantitative analysis section?

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Question 49

What does 'Access to External Funding' indicate in sovereign analysis?

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Question 50

Why might a 'Regional Government Issuer' have a different credit rating than the Sovereign?

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