Microsoft Word - Money, Banking, and Int Finance(scribd).docx

Money, Banking, and International Finance

A.M. Best examines local accounting rules, government policies and regulations, a country’s
economic growth, and social stability.

Table 2. A.M. Best’s Five-Tier Scale for Country Risk for 2012

Rating Country

Tier 1

Australia, Austria, Canada, Denmark, Finland, France, Germany, Gibraltar, Guernsey,

Isle Of Man, Jersey, Luxembourg, Netherlands, Norway, Singapore, Sweden,

Switzerland, United Kingdom, and United States

Tier II

Barbados, Belgium, Bermuda, British Virgin Islands, Cayman Islands, Chile, Hong

Kong, Ireland, Italy, Japan, Liechtenstein, Macau, New Zealand, Slovenia, South Korea,

Spain, and Taiwan

Tier III

Anguilla, Bahamas, Bahrain, Brazil, China, Cyprus, Israel, Kuwait, Malaysia, Malta,

Mexico, Netherlands Antilles, Oman, Poland, Qatar, Saint Kitts and Nevis, Saudi

Arabia, South Africa, Thailand, Trinidad and Tobago, and United Arab Emirates

Tier IV

Antigua and Barbuda, Argentina, Brunei, Colombia, Costa Rica, El Salvador, India,

Indonesia, Jordan, Kazakhstan, Mauritius, Morocco, Panama, Peru, Philippines, Russia,

Tunisia, and Turkey

Tier V

Algeria, Belarus, Bolivia, Bosnia and Herzegovina, Dominican Republic, Ecuador,
Egypt, Ghana, Guatemala, Honduras, Jamaica, Kenya, Lebanon, Libya, Nicaragua,
Nigeria, Pakistan, Syria, Ukraine, Venezuela, and Vietnam
Source: A.M. Best. 2012. Available from http://www3.ambest.com/ratings/cr/crisk.aspx (accessed on 10/16/2012)

Coface, France's export credit underwriter, is another international credit-rating agency.
Table 3 shows Coface’s 2012 rating of countries. The A1 category includes the lowest risk
countries while the D category entails highly risky countries. Coface offers insurance to
companies that deal with foreign companies. If a foreign business defaults on a payment to the
insured company, then Coface would pay the insurance claim. Unfortunately, a foreign company
could suffer financial troubles from bankruptcy, violent protests, revolution, or an international
war. Consequently, companies pay greater insurance premiums for insuring business
transactions with foreign companies located in high-risk countries. Finally, Coface compiles a
similar ranking scale for countries’ business climate.

Key Terms

political risk
firm specific risk
trade bloc
country risk
transfer risk
Transparency International
fronting loans

special dispensation

global specific risk

risk-free interest

risk premium

basis points (bps)

Risk Rating Method

international credit-rating agencies