The Following Is an Example of a Credit Scoring Model

question 80

Multiple Choice

The following is an example of a credit scoring model to estimate the probability of debt rescheduling for country I: P_i = 0.25 DSR_i + 0.17 IR_i - 0.03 INVR_i + 0.84 VAREX_i + 0.93 MG_i
Where P_iis the probability of rescheduling country I's debt; DSR is the country's 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.
Two countries are identical in all respects except that country A's rate of growth of the domestic money supply (MG) is 33 percent, while country B's MG is 25 percent, and country A's variance of export revenue (VAREX) is 3.75 percent, while country B's VAREX is 10 percent. Based only on these two variables, which country possesses the most sovereign country risk?

• A)Country A because the higher rate of money supply growth is insufficient to overcome the impact of a lower export revenue variance on country risk exposure.
• B)Country B because the higher rate of money supply growth has less impact on country risk exposure than the impact of a lower export revenue variance.
• C)Country A because the higher rate of money supply growth is sufficient to overcome the impact of a higher export revenue variance on country risk exposure.
• D)Country B because the higher rate of money supply growth has a positive impact on country risk that outweighs the impact of a lower export revenue variance.
• E)They both have the same sovereign country risk exposure.

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Definitions:

Recessive Trait

A genetic trait that is expressed only when two recessive alleles for the same characteristic are inherited, one from each parent.

Gene

A basic unit of heredity, made up of DNA, that contains the information necessary to build and maintain an organism's cells and pass genetic traits to offspring.

Gender Roles

Gender roles refer to societal norms dictating the types of behaviors considered acceptable, appropriate, or desirable for people based on their actual or perceived sex or gender.

Theoretical Approaches

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