B country as debt is priced higher because the

b. Country A's debt is priced higher because the probability of rescheduling is lower
for country A than does country B.
c. Country B's debt is priced lower because country B has a lower probability of
rescheduling than does country A.
d. Country A's debt is priced lower because country A has a higher probability of
rescheduling than does country B.
e. Both debt issues have the same price.
Answer: D
These questions accompany Appendix 15A.
True/False
15a-1 The buyers of LDC loans often look to benefit from debt-equity swaps with the LDC for
the purpose of investment in the LDC.
T
15a-2 Debt-equity swap investors are assured that their assets will not face the risk of future
expropriation.
F 15a-3 A disadvantage of debt-equity swaps to investors often is the prohibition of repatriating
dividends for long periods of time.
T
15a-4 Commercial banks in the U.S. are not allowed to buy real equity or engage in commerce
in foreign countries by Federal Reserve Regulation K.
15-14

Chapter 15 - Sovereign Risk
T
15a-5 In a MYRA the lender bank generally receives a restructuring fee and a higher interest
rate in exchange for a longer maturity loan that has a grace period of no debt service
payments.
F
15a-6 Concessionality refers to the amount of book value the bank looses on a loan that has
gone through a multiyear restructuring agreement.
F
15a-7 One advantage of MYRAs is that usually they are designed with an option that allows the
lending FI to choose the currency of repayment.
T
15a-8 The more volatile are the currency exchange rates, the greater is the value of a currency
option in a MYRA to the borrower and the more costly it is to the lender.
F 15a-9 The primary benefit of a debt for debt swap is the creation of a more marketable and
liquid capital market instrument.
T
Multiple Choice
15a-10 If a two-year grace period is granted on a 10-year maturity, 15 percent annual coupon
loan, previously selling at par, what is the impact on the loan's price?
Multiple Part Questions
Use the following information to answer the next four (4) questions:
A bank is in the process of renegotiating a non-amortizing (principal and interest due at
maturity) $50 million loan that is due in two years. The agreement required reducing
the interest rates (compounded annually) from the existing 6 percent to 5 percent and to
extend the maturity from two to five years. An up-front fee of 1/2 percent will be
collected as part of the renegotiating fee.

Chapter 15 - Sovereign Risk
15a-11 If the cost of funds to the bank is 5 percent, what is the present value of the loan prior to
the rescheduling?
a. $48.00 million.
b. $50.00 million.
c. $50.25 million.
d. $50.93 million.
e. $53.00 million.
Answer: D
15a-12 What is the present value of the rescheduled loan to the bank if the cost of funds to the
bank is 5 percent?