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Explanation:
A sovereign default often leads to significant consequences, including a high likelihood of a banking crisis because domestic banks typically hold large amounts of government debt. As a result, shorting bank equities could be a profitable strategy. Moreover, default often triggers political instability (regime change, protests), which increases discontinuous political risk.
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24.9.3. Jim is anticipating Ibit defaulting on its debt. What type of political risk has become more likely and what would be a smart investment if Jim cannot invest outside of Ibit?
A
Discontinuous risk, shorting bank equities
B
Continuous risk, holding cash
C
Increased risk of war, long equities
D
Risk of nationalization, long gold