2. Local-Currency vs Foreign-Currency Ratings Concept
About: Local-currency rating typically higher (gov can print). Foreign-currency rating constrained by FX reserves. Drives sovereign debt strategy.Tóm tắt: Local-currency rating thường cao hơn (in được tiền). Foreign-currency bị giới hạn FX reserves.
Local Sovereign can print own currency to pay → typically higher rating.
Foreign Must obtain FX → lower rating, especially if FX reserves thin.
3. Municipal Bonds Concept
About: GO (general obligation, full faith and credit) vs Revenue (specific project income). Tax-exempt at federal level. Credit analysis differs from corporates.Tóm tắt: GO (cam kết chung) vs Revenue (project cụ thể). Miễn thuế federal.
General obligation (GO) Backed by full faith and credit + taxing power.
Revenue Backed only by revenues of a specific project (toll road, water utility) — usually riskier.
Tax-exempt Federal income-tax exempt; some also state-exempt.
Practice problem Practice
Practice problem
Country X has weak FX reserves but can print its own currency. Should its local-currency or foreign-currency rating be higher?
Show solution
Local-currency: government can print own currency to pay → near-zero default risk in local terms.
Foreign-currency: must source FX → constrained by thin reserves.