Explanation:
A country's local currency rating is generally equal to or better than the foreign currency rating because some countries are able to simply print more money to meet obligations.
(Book 4, Module 51.2, LO 51.e)
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Question 14
Country risk analysis involves seeing what the world will look like in the future, not what it looks like today. Many countries are suffering from massive amounts of debt and political upheaval. As such, there are basic procedures that rating agencies follow when undertaking country risk analysis. Which of the following statements is most likely incorrect regarding how rating agencies measure sovereign default risk? The ratings process includes:
A
Sovereign default risk is multifaceted and must be analyzed from many perspectives.
B
A local currency rating is usually worse than a country’s corresponding foreign currency rating.
C
Sovereign ratings may change over time but change much less frequently than corporate bond ratings.
D
The trustworthiness of the government and the nature of the economy must also be considered when evaluating sovereign default risk.
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