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Answer: Item 1
A is correct. A higher dependence on a single commodity makes a country's overall economy more vulnerable to changes in demand or prices of that commodity. This increased vulnerability can lead to economic instability and thus a higher country risk. While the other items (B, C, and D) are positive developments that would generally lower the country's risk score, they do not have a negative impact like the heavy reliance on a single commodity as described in Item 1.
Author: LeetQuiz Editorial Team
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Bank QRS is evaluating the possibility of offering loans to enterprises operating within a frontier market country. A credit risk analyst from the bank has carried out an assessment of this country to identify factors that may impact its country risk, providing the following observations:
Item 1: The nation's economy is heavily reliant on oil production, with significant oil reserves. Item 2: The country has recently enacted regulations that make it easier for investors to pursue legal action against companies and their executive teams. Item 3: The nation has recently overhauled its legal system to improve its independence from other governmental branches. Item 4: The nation's sovereign credit spreads have narrowed over the last year.
Which of these factors is most likely to adversely impact the nation's risk assessment?
A
Item 1
B
Item 2
C
Item 3
D
Item 4
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