Country and Sovereign Risk: Analysis, Rating and Risk Management

• Financial Crises, Country Risk and Sovereign Default Risk
• Economic and Financial Foundations of Country Risk Assessment
• Country Risk Assessment Methodologies
• Country and Sovereign Ratings and their Interpretations
• Risk Models for Sovereign Credit Risk
• International Portfolio Investment Analysis
• Hedging Country and Sovereign Risk

The European debt crisis that started in the spring of 2010 has lead to a hugely increased focus on country risk in general and on sovereign credit risk in particular.

The objective of this seminar is to give you a good introduction to country and sovereign risk and a good and practical understanding of tools and methods for assessing and managing these risks.

We start with a general introduction to country and sovereign risk. We define the concepts “country risk” and “sovereign risk”, and we explain the sources of these risk. We also give an overview of the role that country and sovereign risks have played in the current and historical financial crises (such as the Asian currency Crisis).

We then look at the economic and financial foundations of country risk assessment. We explain the debt dynamics and “events” such as debt restructuring, debt moratorium, and currency devaluation.

Further, we present and explain a number of country risk assessment methodologies, including the analysis of socioeconomic, fiscal and monetary variables. We also discuss how country and sovereign risks are reflected in country and sovereign credit risk ratings. We give examples of country and sovereign debt ratings and we discuss their impact on sovereign debt markets. We present some quantitative risk models for country and sovereign risk and explain how these models can be used in practice for calculating “Country VaR” and other risk measures.

Further, we look at the investment implications of country and sovereign risk. We explain how sovereign debt instruments affect the risk-return characteristics of an investment portfolio, and we demonstrate how to construct optimal portfolios that include government bonds.

Finally, we present and explain a number of tools for mitigating country and sovereign risk, including the use of national and multinational guarantees, restructuring strategies, future flow securitizations, and risk transfer with sovereign credit derivates.

 

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Financial Crises, Country Risk and Sovereign Default Risk

• Country and Sovereign Risk: Definitions, Terminology, Sources of Risk
• The European Debt Crisis and the Future of the Euro
• Sovereign Debt Crises – the Historical Perspective
• Solving Debt Crises – Debt Reduction Strategies and Instruments

Economic and Financial Foundations of Country Risk Assessment

• Country Debt Dynamics
• Near- Medium and Long Term Fiscal Outlooks
• Default/Moratorium/Restructuring
• Devaluation
  • Relative price effects
  • Income effects
  • Stock adjustments
  • Country Risk Ratios

12.00 - 13.00 Lunch

13.00 - 16.30 Country Risk Assessment Methodologies

• Welfare and Social Indicators
• Macroeconomic Structures of Growth
• External Indebtedness, Liquidity and Solvency
• The Savings-Investment Gap and Domestic Financial Intermediation
• Growth, Crisis and Governance
• Case Study and Small Exercise

Country and Sovereign Ratings and their Interpretations

• Global Country Risk Ratings
  • Specialized ranking firms
  • Export credit agencies
  • Global country risk ranking methods
• Country (Sovereign) Credit Risk Ratings
  • The methodologies of major credit rating agencies (Moody’s, S&P and Fitch)
  • Sovereign debt ratings and their interpretations
  • The impact of ratings on sovereign bond markets (spreads etc.)
• Case Study and Small Exercise

Evaluation and Termination of the Seminar