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Answer: Item 2
## Explanation **Item 2** is most likely to have a negative impact on the country's risk score because: - **Increased litigation risk**: Making it easier for investors to file lawsuits against firms and management teams creates higher legal and operational risks for corporations operating in the country - **Higher business costs**: This legal environment can lead to increased legal expenses, potential liability costs, and reduced corporate flexibility - **Deterrent to investment**: Such legal reforms may discourage foreign investment and corporate expansion in the country **Analysis of other items:** - **Item 1**: Oil-dominated economy with significant reserves is generally positive for a country's economic stability and creditworthiness - **Item 3**: Legal system reform to increase independence typically improves governance quality and reduces political risk - **Item 4**: Declining sovereign credit spreads indicate improving credit quality and reduced country risk Therefore, Item 2 represents the only factor that would likely increase the country's risk profile.
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Bank QRS is considering extending loans to corporations based in a frontier market country. A credit risk analyst at the bank has conducted research on the country to determine factors that may affect its country risk and has compiled the following findings:
Which of these items is most likely to have a negative impact on the country's risk score?
A
Item 1
B
Item 2
C
Item 3
D
Item 4