The Following Is an Example of a Credit Scoring Model

question 66

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 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 debt service ratio is 1.5,country B's 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 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 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 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 debt service ratio's impact outweighs the higher import ratio's impact on the country risk exposure.

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