Country Risk Assessment: A Guide to Global Investment Strategy (The Wiley Finance Series)

Country Risk Assessment......Page 4
Contents......Page 8
Preface......Page 12
Acknowledgments......Page 14
Foreword by Campbell R. Harvey......Page 16
1.1 An historical perspective......Page 18
1.2 Outline of the book......Page 21
References......Page 24
2.1.1 The terminologies......Page 26
2.1.2 Definitions of country risk......Page 27
2.1.4 Types of investment......Page 30
2.1.5 The historical context......Page 31
2.1.6 Different methodologies......Page 32
2.2.1 Natural disasters......Page 33
2.2.2 Socio-political risk......Page 34
2.2.3 Country-specific economic risk......Page 39
References......Page 42
3 The Economic and Financial Foundations of Country Risk Assessment......Page 48
3.1.1 Relative price effects: The elasticities approach......Page 49
3.1.2 Income effects: The absorption approach......Page 50
3.1.3 Stock adjustments: The monetary approach......Page 55
3.1.4 Stock adjustments: The portfolio balance approach......Page 58
3.1.5 Country risk: Ratio analysis......Page 59
References......Page 64
4.1 Introduction......Page 66
4.2 Analysis of welfare and social indicators of the development process......Page 68
4.3 Analysis of the macroeconomic structures of growth......Page 69
4.4 External indebtedness, liquidity and solvency analysis......Page 74
4.5 The savings–investment gap and domestic financial intermediation......Page 78
4.6 Growth, crisis and governance......Page 80
4.7 The “qualitative” aggregate approach to political risk......Page 86
4.8 Conclusion......Page 89
References......Page 92
5.1.1 Specialized ranking firms......Page 96
5.1.2 Export credit agencies......Page 105
5.1.3 Summary of global country risk ranking methods......Page 107
5.2 Country credit ratings......Page 110
5.2.2 Fitch......Page 111
5.2.3 Moody’s......Page 115
5.2.4 Standard & Poor’s......Page 118
5.2.5 Country rankings published in magazines......Page 119
5.2.6 Summary of country credit rating methods......Page 122
5.3 Conclusion......Page 126
References......Page 127
6.1 Discriminant analysis......Page 132
6.2 Logit and probit models......Page 134
6.3 Regression analysis and model building......Page 135
6.4 Monte Carlo simulations......Page 138
6.5 Value at risk (VaR)......Page 139
6.5.2 VaR for a two-asset portfolio......Page 140
6.6 Principal components analysis......Page 141
6.7 Non-linearities and non-parametric estimation......Page 142
6.9 Multicriteria......Page 144
References......Page 146
7.1.2 Probabilities of default using interest rate spreads......Page 150
7.1.3 Probabilities of default using firm value......Page 152
7.1.4 Countrymetrics......Page 154
7.1.6 Credit value at risk......Page 157
7.1.7 Credit VaR, default correlation and contagion......Page 158
7.2.2 Adjusting the discount rate......Page 159
7.2.3 The Macro CAPM......Page 161
7.2.4 Measuring political risk as an insurance premium......Page 162
References......Page 164
8.1 Modern financial theory......Page 166
8.2.1 The international portfolio investment panorama......Page 171
8.2.2 Impact of country risk on international portfolio investment......Page 172
8.2.3 International diversification......Page 173
8.2.4 International Capital Asset Pricing Model......Page 175
8.3 The Limits of the ICAPM......Page 176
8.3.1 The normal distribution......Page 177
8.3.2 Portfolio diversification......Page 178
8.3.4 The Bank of America approach......Page 180
8.3.5 The Goldman Sachs approach......Page 181
8.4 Conclusion......Page 182
References......Page 183
9.1 Introduction......Page 188
9.2.2 Bonds versus loans......Page 191
9.2.3 The rising importance of commercial bank lending in the post-WWII era......Page 192
9.2.4 The debt crisis and the market-driven menu approach......Page 193
9.3.1 Phase I – Buying time with rescheduling......Page 194
9.3.2 Phase II – The new money approach......Page 195
9.3.3 Phase III – The official concerted approach to debt restructuring......Page 196
9.4 Debt reduction instruments......Page 202
9.5.1 The return of private capital flows......Page 205
9.5.2 The return of bondholders......Page 206
9.5.4 The emergence of structured financing......Page 207
9.6 Conclusion......Page 208
Appendix: The Brady Plan at work in EMCs......Page 209
References......Page 212
10.1 Introduction......Page 214
10.2 The role of national export credit agencies......Page 215
10.3.1 The World Bank’s co-financing program......Page 218
10.3.2 The role of the International Finance Corporation......Page 220
10.4 The risk mitigation role of public and private risk guarantee institutions......Page 221
10.5 The role of private providers of specialist insurance for country risk......Page 222
10.6 The market-based “menu” approach......Page 223
10.6.1 The rise of the London Club debt secondary market of emerging market loans......Page 225
10.6.3 Technical supply and demand factors affecting debt prices......Page 228
10.6.4 Debt conversion transactions......Page 229
10.6.5 Mechanics of debt conversion......Page 230
10.6.6 Range of debt conversion transactions......Page 232
10.6.7 Official bilateral debt conversion......Page 234
10.6.8 Debt conversion: A positive sum game?......Page 235
References......Page 237
11.1 Introduction......Page 238
11.2.1 Official sources of country risk data and information......Page 240
11.2.2 Private sources of country risk data and information......Page 251
11.3.1 The role of specialized country risk assessment companies......Page 256
11.3.2 National public and private information sources......Page 257
11.3.3 Think-tanks and risk analysis companies......Page 258
11.4 Conclusion......Page 260
Appendix: External debt, official information sources......Page 261
References......Page 262
Glossary......Page 264
Index......Page 282