A lending decision to a firm in a foreign country should involve both a credit risk analysis and a sovereign risk analysis.

Question

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A credit risk analysis assesses the likelihood of a borrower defaulting on their loan, while a sovereign risk analysis evaluates the political and economic stability of a foreign country and the likelihood of the government defaulting on its financial obligations. Both factors are important to consider when making a lending decision to a foreign firm.

A Lending Decision to a Firm in a Foreign Country