When making a loan decision to a foreign party, an FI should consider sovereign risk above credit risk.

Question

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Sovereign risk pertains to the risk that a foreign government may default on its financial obligations, which would have a significant impact on the borrower's ability to repay the loan. Therefore, when making a loan decision to a foreign party, a financial institution should consider sovereign risk above credit risk.

When Making a Loan Decision to a Foreign Party, an FI