The Following Is an Example of a Credit Scoring Model

question 1

Multiple Choice

The following is an example of a credit scoring model to estimate the probability of debt rescheduling: P_i= 0.25DSR_i + 0.17IR_i − 0.03 INVR_i + 0.84VAREX_i + 0.93 MG_i
Where P_i is the probability of rescheduling country I's debt; DSR is the country's total debt service ratio; IR is the country's import ratio; INVR is the country's investment ratio; VAREX is the country's variance of export revenue; and MG is the country's rate of growth of the domestic money supply.
If two countries are identical in all respects except that country A's total debt service ratio is 1.5, country B's total debt service ratio is 1.25, country A's import ratio is 0.75, and country B's import ratio is 0.90, which country poses the least sovereign country risk?

• A)Country A, because the higher total debt service ratio's negative impact on the country's risk exposure outweighs the impact of the lower import ratio effect.
• B)Country B, because the higher total debt service ratio's negative impact on the country's risk exposure outweighs the impact of the lower import ratio effect.
• C)Country A, because the higher total debt service ratio's positive impact on the country's risk exposure outweighs the impact of the lower import ratio effect.
• D)Country B, because the lower total debt service ratio's impact outweighs the higher import ratio's impact on the country risk exposure.
• E)They both have the same sovereign country risk exposure.