Basic information on financial databases: cook books, tips and tricks & economic news

This blog contains schematic easy to grasp - hands on - help in performing searches in economic databases, making work sets and making them inter-exchangeable between the databases.

* Disclaimer. I am not a finance professional. Most posts are the result of personal findings.

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Country Risk, country rating, Ireland Rating (December 17, 2010-update)

LONDON (October 5th, 2010) —Moody's Investors Service said Tuesday it may cut Ireland's debt rating again, citing the increased cost to the government of repairing the stricken banking system, weak economic growth and rising borrowing costs.

A further downgrade could push Ireland's borrowing costs higher and make it more difficult for the government to meet its debt repayments without seeking help from the European Union's European Financial Stability Fund.
(Click for whole article)
Moody's downgrades Ireland rating (december 17th 2010)
Dutch article:
PARIJS - Moody's verlaagt de beoordeling van de kredietwaardigheid van Ierland, zo maakte de kredietbeoordelaar vrijdag bekend.
Aanleiding zijn de toenemende onzekerheden over de economie en de begroting van het door schulden geplaagde land.
De beoordeling gaat vijf niveaus omlaag, van Aa2 naar Baa1. De verlaging is volgens Moody's gebaseerd op het risico dat de financiële kracht van de overheid verder kan afnemen als de economische groei tegenvalt of als de kosten van het stabiliseren van het banksysteem hoger zijn dan voorspeld.

The information also applies to some extent to Country ratings.

1. Country Risk
Country risk refers to the risk of investing in a country, dependent on changes in the business environment that may adversely affect operating profits or the value of assets in a specific country.
For example, financial factors such as currency controls, devaluation or regulatory changes, or stability factors such as mass riots, civil war and other potential events contribute to companies' operational risks. This term is also sometimes referred to as political risk, however country risk is a more general term, which generally only refers to risks affecting all companies operating within a particular country.

Political RiskPolitical risk analysis providers and credit rating agencies use different methodologies to assess and rate countries' comparative risk exposure. Credit rating agencies tend to use quantitative econometric models and focus on financial analysis, whereas political risk providers tend to use qualitative methods, focusing on political analysis. However, there is no consensus on methodology in assessing credit and political risks.
(source: wikipedia)

2. Country Risk
A.M. Best defines country risk as the risk that country-specific factors could adversely affect an insurer's ability to meet its financial obligations. Country risk is evaluated and factored into all A.M. Best ratings. As part of evaluating country risk, A.M. Best identifies the various factors within a country that may directly or indirectly affect an insurance company

Countries are placed into one of five tiers, ranging from Country Risk Tier 1 (CRT-1), denoting a stable environment with the least amount of risk, to Country Risk Tier 5 (CRT-5) for countries that pose the most risk and, therefore, the greatest challenge to an insurer's financial stability, strength and performance.
Source: Ratings & Analysis Center < -- click for site
The site contains free downloadable! Country reports on their financial (political) risk.

Sovereign Risk (Wiki)
Sovereign risk is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees. The existence of sovereign risk means that creditors should take a two-stage decision process when deciding to lend to a firm based in a foreign country. Firstly one should consider the sovereign risk quality of the country and then consider the firm's credit quality.

Five macroeconomic variables that affect the probability of sovereign debt rescheduling are:
  • Debt service ratio
  • Import ratio
  • Investment ratio
  • Variance of export revenue
  • Domestic money supply growth
The probability of rescheduling is an increasing function of debt service ratio, import ratio, variance of export revenue and domestic money supply growth. Frenkel, Karmann and Scholtens also argue that the likelihood of rescheduling is a decreasing function of investment ratio due to future economic productivity gains. Saunders argues that rescheduling can become more likely if the investment ratio rises as the foreign country could become less dependent on its external creditors and so be less concerned about receiving credit from these countries/investors.

Global Financial Stability Report (IMF) (Last Updated: December 01, 2010) (the report)

Monthly bulletin of statistics (open accessible)
Government bonds - monthly 2007 - 2010, selected countries Belgium, France, Germany, Ireland, Iceland, Italy, Netherlands and Spain.
The rates are an indication of financial stability of a country. In the case of Ireland you can expect a rise in rate.
2010AUG 5.30
2010JUL 5.32
2010JUN 5.31
2010MAY 4.86 

2010APR 4.76
2010MAR 4.54

Blog Items Databaser
Stock rating, debt rating and stock ranking : < click
Databases with Ratings data in our library  <   click

This site explains the S&P strategy in rating souvereigns and their  transfer and convertibility (T&C). (most recent 23/Aug/2010) The information is copyrighted, so I will sustain with a link to their site.
More information on the subject can be found at Mark Bruyneel's blog click here
This blog will also explain how to find RISK data in Datastream.

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