70.2K

Verified Solution

Link Copied!

Let's assume, being a treasurer of a multinational company, you are conducting a preliminary country risk evaluation of some potential borrowers of two different countries. In this preliminary analysis, you are going to use only outside evaluation models. Briefly discuss how the outside evaluation models will give you some preliminary idea of your potential borrowers' country risk. (1.5 marks)

Instructions: You may select two countries (can use the charts). Based on all 3 outside evaluation methods, briefly discuss what decision you are going to make about the country risk of those two countries and justify your decision. Please focus on justifying your decision rather than explaining what these 3 methods are.

Outside Evaluation Method 1: The Euromoney Country Risk Index

Used to base on the spread of the required interest rate on a country's debt over LIBOR

Now an index based on a large number of economic and political factors.

Score = 0 = maximum risk Score=100 = no risk

- Tier 1 (80-100): Rating: AA to above

- Tier 2 (65-79.9): Rating: A- to AA

- Tier 3 (50-64.9): Rating: BB+ to A-

- Tier 4 (36-49.9): Rating: B- to BB+

- Tier 5 (0-35.9): Rating: D to B-

Outside Evaluation Method 2: The Economist Intelligence Unit ratings:

A combined economic and political risk rating on a 100-point scale

Score=0 =norisk Score= 100 = maximum risk

Outside Evaluation Method 3: Institutional Investor Index

Based on the scores given by the loan officers of major multinational banks surveyed

Answer & Explanation Solved by verified expert

See Answer