Financial Risk Manager Part 1

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A sovereign wealth fund manager is analyzing country risks associated with investing in the bonds of issuers in both developing and developed markets. The manager assesses the default risk of sovereign bonds as well as the country risk reflected in corporate bonds. Assuming all else is held constant, which of the following statements would most likely be correct for the manager to make?

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A global economic downturn will generally have less impact on developing countries than on developed countries.

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Countries that have larger commitments to provide health care and pay pensions to their citizens will have higher default risk than equivalent countries that do not.

Countries with a much higher government debt-to-GDP ratio will generally have a lower default risk than countries with a lower debt-to-GDP ratio.

Sovereign defaults by developing countries will typically result in no recovery for investors holding bonds issued by that country.