CH-12 Sovereign risk – Financial Institutions Management : Book Guide

Chapter 12 Sovereign risk Solutions for end-of-chapter questions Questions and problems What risks are incurred when making loans to borrowers based in foreign countries? Explain. When making loans to borrowers in foreign countries, two risks need to be considered. First, the credit risk of the project needs to be examined to determine the ability of the borrower to repay the money. This analysis is based strictly on the economic viability of the project and is similar in all countries. Second, unlike domestic loans, creditors are exposed to sovereign risk. Sovereign risk is defined as the uncertainty associated with the likelihood that the host government may not make foreign exchange available to the borrowing firm to fulfil its payment obligations. Thus, even though the borrowing firm has the resources to repay, it may not be able to do so because of actions beyond its control. Thus, creditors need to account for sovereign risk in their decision process when choosing to invest abroad. What is the difference between debt rescheduling and debt repudiation and why is this distinction important? Loan repudiation refers to a situation of outright default where the borrower refuses to make any further payments of interest and principal. In contrast, loan rescheduling refers to temporary postponement of payments during which time new terms and conditions are agreed upon between the borrower and lenders. In most cases, these new terms are structured to make it easier for the borrower to repay. Identify and explain at least four reasons why rescheduling debt in the form of loans is easier than rescheduling debt in the form of bonds. The reasons why it is easier to reschedule debt in the form of bank loans than bonds, especially in the context of post-war lending in international financial markets, include: (i) Loans are usually made by a small group (syndicate) of banks as opposed to bonds that are held by individuals and institutions that are geographically dispersed. Even though bondholders usually appoint trustees to look after their interests, it has proven to be much more difficult to approve renegotiation agreements with bondholders in contrast to bank syndicates. (ii) The group of banks that dominate lending in international markets is limited and hence able to form a cohesive group. This enables them to act in a unified manner against potential defaults by countries. (iii) Many international loans, especially those made in the post-war period, contain cross-default clauses, which make the cost of default very expensive to borrowers. Defaulting on a loan would trigger default clauses on all loans with such clauses, preventing borrowers from selectively defaulting on a few loans. (iv) In the case of post-war loans, governments were reluctant to allow banks to fail. This meant that they would also be actively involved in the rescheduling process by either directly providing subsidies to prevent repudiations or providing incentives to international agencies like the IMF and World Bank to provide other forms of grants and aid. 4 What three country risk assessment models are available to investors? How is each model compiled? The Euromoney Index was originally published as the spread of the Euro market interest rate for a particular country’s debt over LIBOR. The index was adjusted for volume and maturity. The index recently has been replaced by a large number of subjectively determined economic and political factors. The Economist Intelligence Unit (EIU) rates country risk by combined economic and political risk on a 100 (maximum) point scale. The higher the number, the worse the sovereign risk rating of the country. The Institutional Investor Index is based on surveys of the loan officers of major multinational banks who subjectively give estimates of the credit quality of given countries. The scores range from 0 for certain default to 100 for no probability of default. 5 What types of variables normally are used in a CRA Z score model? Define the following ratios and explain how each is interpreted in assessing the probability of rescheduling. The models typically use micro- and macroeconomic variables that are considered important in explaining the probability of a country’s credit rescheduling. (a) Debt service ratio The debt service ratio (DSR) divides interest plus amortisation on debt by exports. Because interest and debt payments normally are paid in hard currencies generated by exports, a larger ratio is interpreted as a positive signal of a pending debt rescheduling possibility. (b) Import ratio The import ratio (IR) divides total imports by total foreign exchange reserves. A growing amount of imports relative to FX reserves indicates a greater probability of credit restructuring. This ratio is positively related to debt rescheduling. (c) Investment ratio The investment ratio (INVR) measures the investment in real or productive assets relative to gross national production. A larger investment ratio is considered a signal that the country will be less likely to require rescheduling in the future because of increased productivity; thus the relationship is negative. However, because the bargaining position of the country will be enhanced, some observers feel that the relationship is positive. That is, a stronger ratio gives the country more power to request, even demand, rescheduling to achieve even better terms on its debt. (d) Variance of export revenue Export revenues are subject to both quantity and price risk due to demand and supply factors in the international markets. Increased variance is interpreted as a positive signal that rescheduling will occur because of the decreased certainty that debt payments will be made on schedule. (e) Domestic money supply growth Rapid domestic money supply growth indicates an increase in inflationary pressures that typically means a decrease in the value of the currency in international markets. Thus, real output is often negatively affected, and the probability of rescheduling increases. 6 An FI manager has calculated the following values and weights to assess the credit risk and likelihood of having to reschedule a loan. From the Z-score calculated from these weights and values, is the manager likely to approve the loan? Validation tests of the Z-score model indicated that scores below 0.500 were likely to be non-reschedulers, while scores above 0.700 indicated a likelihood of rescheduling. Scores between 0.500 and 0.700 do not predict well.
Variable Country value Weight
DSR 1.25 0.05
IR 1.60 0.10
INVR 0.60 0.35
VAREX 0.15 0.35
MG 0.02 0.15
Z = 0.05DSR + 0.15IR + 0.30INVR + 0.35VAREX + 0.15MG = 0.05(1.25) + 0.15(1.60) + 0.30(0.60) + 0.35(0.15) + 0.15(0.02) = 0.488 This score classifies the borrower as a probable non-rescheduler. 7 Countries A and B have exports of $2 billion and $6 billion, respectively. The total interest and amortisation on foreign loans for both countries are $1 billion and $2 billion, respectively. (a) What is the debt service ratio (DSR) for each country? DSR = DSRA = $1/$2 = 0.50 DSRB = $2/$6 = 0.33 (b) Based only on this ratio, to which country should lenders charge a higher risk premium? Based on the above information, lenders should charge a higher risk premium on loans to Country A because it has more interest and amortisation payments due as a percentage of total exports. (c) What are the shortcomings of using only these ratios to determine your answer in part (b)? This is a very static model and such a preliminary conclusion could be misleading. It is also necessary to consider other factors, which may be more favourable for Country A. Looking forward, it is also possible that Country A may be at its developing stage where imports and loans are needed to increase future exports. Historically, most of the industrialised countries were net importers of capital during their developing stages. Without a comprehensive analysis of the fundamentals, it is not possible to judge the quality of the borrower. 8 What shortcomings are introduced by using traditional CRA models and techniques? In each case, what adjustments are made in the estimation techniques to compensate for the problems? The following six items often are listed as problems in using these statistical models. Measuring the variables accurately and in a timely manner is often difficult because of data accessibility. The choice of rescheduling or not rescheduling is often not a dichotomous situation. In effect, many other payment alternatives may be available through negotiation. Political risk factors are extremely difficult to quantify. The portfolio effects of lending to more than one country are not considered. Thus, the true amount of systematic risk added to the portfolio may be less than estimated by evaluating the rescheduling probability of countries independently. Statistical models are ill-prepared or designed to evaluate the incentives of both the borrowers and the lenders to negotiate a rescheduling of the debt. Borrowers benefit by lowering the present value of future payments at the expense of reducing the openness of the market to future borrowing as well as withstanding potentially adverse effects on trade. Lenders benefit by avoiding a possible default, collecting additional fees, and perhaps realising tax benefits. Lenders, however, may also be subject to greater scrutiny by regulatory authorities and may have permanent changes in the maturity structure of their asset portfolios. Many of the key variables suffer from the problem of stability. That is, predictive performance in the past may not be a good indicator of predictive performance in the future. 9 How do price and quantity risks affect the variability of a country’s export revenue? Quantity risk refers to the variability in the amount of a commodity produced. This is most likely to be found in agricultural products subject to favourable and unfavourable weather conditions. Price risk refers to the variability in the commodity price due to changes in market conditions, for example, competitors’ supply changes or consumer demand changes. 10 The average 2ER (or VAREX = variance of export revenue) of a group of countries has been estimated at 20 per cent. The individual VAREX of two countries in the group, Holland and Singapore, has been estimated at 15 per cent and 28 per cent, respectively. The regression of individual country VAREX on the average VAREX provides the following beta (coefficient) estimates: H = Beta of Holland = 0.80 S = Beta of Singapore = 0.20 (b) Based only on the VAREX estimates, which country should be charged a higher risk premium? Explain. Based on the VAREX measure alone, risk premiums should be lower for loans made to the Netherlands because its VAREX is lower than Singapore’s. VAREX measures the volatility of the export revenues and is one measure of the ability of countries to repay foreign debt. (c) If FIs include systematic risk in their estimation of risk premiums, how would your conclusions to part (a) be affected? Explain. Since the systematic beta of Singapore is lower than that of the Netherlands, it will reduce the overall systematic risk of an FI’s portfolio of foreign loans. In this case, it benefits the FI to add Singapore to its list of countries because its unsystematic risk can be diversified away. Thus, if the industrialised countries, including the Netherlands, are experiencing a recession and a decline in export revenues, Singapore’s exports are likely to be unaffected as evidenced by the low beta. This implies that the debt repayments between these two countries are not highly correlated, helping to reduce the bank'’ total risk. 11 Explain the following relation: p = f (IR, INVR) +, + or – Where p = Probability of rescheduling IR = Total imports/Total foreign exchange reserves INVR = Real investment/GNP This relation states that the probability of a country rescheduling its foreign debt is a positive function of IR but it may be positively or negatively related to INVR: IR = Total imports/Total FX reserves. If imports as a percentage of FX reserves increase, it leaves less foreign exchange for payments of debt. As a result, there is a higher likelihood that the country may have to reschedule its debt. INVR = Real investment/GNP. If a country has higher savings and higher investments, it should lead to higher growth, reducing the likelihood of rescheduling. This supports the negative sign of the relationship. On the other hand, it is possible that the higher growth puts the country in a stronger bargaining position with its lenders and, consequently, it may be less intimidated by the threat of default. This may make the likelihood of rescheduling higher, suggesting a positive relationship between p and INVR. 12 What is systematic risk in terms of sovereign risk? Which of the variables often used in statistical models tend to have high systematic risk? Which variables tend to have low systematic risk? Systematic risk refers to the risk effects that cannot be diversified away by lending to more than one country. In effect, some international economic situations will affect the economies of less developed countries in a similar manner. Economic research indicates that the DSR and the VAREX both have high systematic risk elements. Money supply growth and the import ratio seem to have low systematic risk elements. 13 What are the benefits and costs of rescheduling to the following? (a) A borrower? Benefits and costs to the borrower: It could reduce its immediate payments and increase imports for the present. It could also reduce overall payments, depending on the rescheduling agreements. It could result in either no loans being approved in the future or the imposition of more stringent requirements. It could also result in higher premiums on other trade instruments, such as letters of credit. (b) A lender? Benefits and costs to the lenders: It improves the likelihood that the lender will receive full payment of its interest and principal as opposed to an outright default. The restructured loan, on a present value basis, may be higher than the existing present value of the loan. There may be tax advantages to writing off some portions of the loan, so the present value of the complete package may be higher than the current present value of the loan. Banks may be stuck holding loans that are of longer maturity with higher risk. Rescheduled loans may be a burden on the lender’s remaining assets, and markets may penalise the lender for holding on to loans that are hard to dispose of. 14 Who are the primary sellers of LDC debt? Who are the buyers? Why are FIs often both sellers and buyers of LDC debt in the secondary markets? The primary sellers of LDC debt include large FIs who are willing to accept write-downs of loans and small FIs who no longer wish to be involved in the LDC market. Buyers tend to be wealthy investors, hedge funds, FIs, and corporations who wish to use debt-equity swaps to further investment goals. FIs that are both buyers and sellers often do so to readjust their balance sheets to meet corporate goals. 15 Identify and describe the four market segments of the secondary market for LDC debt. (i) Brady bonds are recollateralised loans that have lower coupon interest rates and longer maturities than the original loans. The principal usually is collateralised with the purchase of US Treasury Bonds by the issuing country. Although yields are lower, the Brady bonds have more acceptability in the secondary markets than the original loans. (ii) Sovereign bonds constitute the second largest segment of the LDC debt market. These bonds are issued to repay Brady bonds, and thus they have higher credit risk premiums because they no longer have the cost of the US Treasury collateral. (iii) Performing loans are the original or restructured sovereign loans on which the originating country continues to remain current in the payment of interest and principal. (iv) Non-performing loans are traded in the secondary markets at deep discounts because of non-payment situations. The following questions and problems are based on material presented in Appendix 12A. 16 What are the risks to an investing company participating in a debt-for-equity swap? Debt-equity swap investors often face long periods before they can repatriate dividends, often have large withholding tax restrictions, have the long-term problem of potential expropriation or nationalisation of assets, and face significant foreign exchange currency risk. 17 Chase Bank holds a $200 million loan to Argentina. The loans are being traded at bid–offer prices of 91–93 per 100 in the London secondary market. (a) If Chase has an opportunity to sell this loan to an investment bank at a 7 per cent discount, what are the savings after taxes compared to selling the loan in the secondary market? Assume the tax rate is 40 per cent. The price that Chase could obtain from the investment bank is $200m × (1 – 0.07) = $186m. The tax loss benefit is $14m × 0.40 = $5.6m, for a net price of $186m + $5.6m = $191.6m. In the secondary market, it would have had to sell the loans at 91 cents on the dollar or $182 million. The tax loss benefit is $18m × 0.40 = $7.2m for a net price of $189.20m. Therefore, the savings from selling the loans to the investment bank as opposed to the secondary market is $191.6m – $189.2m = $2.4m. (b) The investment bank in turn sells the debt at a 6 per cent discount to a real estate company planning to build apartment complexes in Argentina. What is the profit after taxes to the investment bank? The investment bank purchased the loan for $186 million, and it sells the loan for $188 million ($200m × (1 – 0.06) = $188m). Thus, profit before taxes is $188m – $186m = $2 million, and profit after taxes is $2m × (1 – 0.40) = $1.20 million. (c) The real estate company converts this loan into pesos under a debt-for-equity swap organised by the Argentinean government. The official rate for dollar to peso conversion is P1.05/$1. The free market rate is P1.10/$1. How much did the real estate company save by investing in Argentina through the debt-for-equity swap program as opposed to directly investing $200 million using the free market rates? If the real estate company had invested directly, it would have received $200m × 1.10 = 220 million pesos. By purchasing through the debt-equity swap, the company pays $188 million and receives $200m × 1.05 = 210 million pesos, for an equivalent rate of 210/188 = P1.117/$1. Thus, it still saves by purchasing through the debt-for-equity swap (P1.117/$1 > P1.10/$1). (d) How much would Chase benefit from doing a local currency debt-for-equity swap itself? Why doesn’t the bank do this swap? Assuming the bank could convert the loan at $188 million into pesos at P1.05/$1, the after-tax effect would be $188m plus the tax loss benefit = $188m + $12(0.40) = $192.8 million. The actual benefit was $191.6 million. Thus, the bank would gain $1.2 million. Chase is not allowed to participate in real-equity purchases in other countries by Federal Reserve Regulation K, nor is it allowed to engage in commerce in other countries. Further, a long-term pesos-denominated position on the balance sheet may create more credit, liquidity and foreign exchange risk than the benefits are worth. 18 Zlick Company plans to invest $20 million in Chile to expand its subsidiary’s manufacturing output. Zlick has two options. It can convert the $20 million at the current exchange rate of 410 pesos to a dollar (i.e. P410/$1), or it can engage in a debt-for-equity swap with its bank City Bank by purchasing Chilean debt and then swapping that debt into Chilean equity investments. (a) If City Bank quotes bid–offer prices of 94–96 for Chilean loans, what is the bank expecting to receive from Zlick Company (ignore taxes)? Why would City Bank want to dispose of this loan? City Bank expects to receive 96 cents to the dollar since it is selling this loan, that is, 0.96 × $20m = $19.20 million. It may wish to sell this loan to reduce its portfolio of troubled or bad quality assets. As US banks experienced problems with several of their foreign loans, their choices were limited to either writing off the loans or disposing of them. The development of an active secondary market has made it easier for FIs to sell them at a discount and rearrange their composition of loans. (b) If Zlick decides to purchase the debt from City Bank and convert it to equity, it will have to exchange it at the official rate of P400/$1. Is this option better than investing directly in Chile at the free market rate of P410/$1? If exchanged at market rates: $20m × P410 = P8200 million, for an effective rate of P410/$1. If exchanged through a debt-for-equity swap: $20m × P400 = P8000 million, for an effective price of P8000/$19.20 = P416.67/$1. Therefore, Zlick should choose the debt-for-equity swap option. (c) What official exchange rate will cause Zlick to be indifferent between the two options? For the options to be equal, the effective price must be: [20(x)]/19.20 = 410 => × = (410 × 19.20)/20 = P393.60/$1 The Chilean government could reduce the official rate to as low as P393.60/$ and the two options will still be equal. This is because the discount obtained from the secondary market is substantial. 19 What is ‘concessionality’ in the process of rescheduling a loan? ‘Concessionality’ refers to the net cost to the FI in restructuring a loan. The amount of concessionality is determined by subtracting the present value of the restructured loan from the present value of the original loan. 20 Which variables typically are negotiation points in an LDC multi-year restructuring agreement (MYRA)? How do changes in these variables provide benefits to the borrower and to the lender? The five common elements typically found in the MYRA negotiation include: (i) A fee charged by the bank to cover the cost of the restructuring. (ii) The interest rate on the loan is usually lowered to allow easier repayment of the loan by the borrowing country. (iii) A grace period may be created to allow the country to build a reserve of hard currency from which it can repay the loan. (iv) The maturity of the loan is normally lengthened. This process reduces the periodic payment stream for the borrower country. (v) Various option and guarantee features may allow the lender to choose the currency for repayment, and/or to provide protection in the case of default. 21 How would the restructuring, such as rescheduling, of sovereign bonds affect the interest rate risk of the bonds? Is it possible that such restructuring would cause the FI’s cost of capital to change? Explain. To the extent that the bonds have increased maturity and lower interest rates, the duration of these bonds will have increased. Thus, the interest rate risk will have increased. While it is possible that the bank’s cost of capital will not change, a bank with a significant portion of its assets in LDC debt that has been restructured will likely find an adverse adjustment in its cost of capital. 22 A bank is in the process of renegotiating a loan. The principal outstanding is $50 million and is to be paid back in two instalments of $25 million each, plus interest of 8 per cent. The new terms will stretch the loan out to five years with no principal payments except for interest payments of 6 per cent for the first three years. The principal will be paid in the last two years in payments of $25 million along with the interest. The cost of funds for the bank is 6 per cent for both the old loan and the renegotiated loan. An upfront fee of 1 per cent is to be included for the renegotiated loan. (a) What is the present value of the existing loan for the bank? The present value of the loan prior to rescheduling is: Payment in year 1: Principal + Interest = $25m + 0.08 × $50 = $29m Payment in year 2: Principal + Interest = $25m + 0.08 × $25 = $27m PV = PVn=1, k=6 ($29) + PVn=2, k=6 ($27) = $51.3884 million (b) What is the present value of the rescheduled loan for the bank? Interest payments in years 1, 2 and 3: 0.06 × $50 = $3m Payment in year 4: Principal + Interest = $25m + 0.06 × $50 = $28m Payment in year 5: Principal + Interest = $25m + 0.06 × $25 = $26.5m PV = PVAn=3, k=6 ($3) + PVn=4, k=6 ($28) + PVn=5, k=6 ($26.5) = $50 million Upfront fee = 0.01 × $50 = $0.50 million PV (total) = $50.50 million (c) Is the concessionality positive or negative for the bank? Concessionality = PVo – PVR = PV of old loan – PV of rescheduled loan = $51.3884 – $50.50 = $0.884 million 23. A bank is in the process of renegotiating a three-year non-amortising loan. The principal outstanding is $20 million, and the interest rate is 8 per cent. The new terms will extend the loan to 10 years at a new interest rate of 6 per cent. The cost of funds for the bank is 7 per cent for both the old loan and the renegotiated loan. An upfront fee of 50 basis points is to be included for the renegotiated loan. (a) What is the present value of the existing loan for the bank? PV of old loan = PVIFAn=3,k=7%($1.6m) + PVIFn=3,k=7%($20m) = $20.5249 million (b) What is the present value of the rescheduled loan for the bank? PV of new loan = PVIFAn=10,k=7%($1.2m) + PVIFn=10,k=7%($20m) + up-front fee of $0.10m = $18.5953 million + $0.10 million = $18.6953 million (c) What is the concessionality for the bank? Concessionality = $20.5249m – $18.6953m = $1.8296 million (d) What should be the upfront fee to make the concessionality zero? Concessionality = $20.5249m – $18.5953m – x = 0  x = $1.9296 million or 9.65 per cent. 24 A $20-million loan outstanding to the Nigerian government is currently in arrears with City Bank. After extensive negotiations, City Bank agrees to reduce the interest rates from 10 per cent to 6 per cent and to lengthen the maturity of the loan to 10 years from the present five years remaining to maturity. The principal of the loan is to be paid at maturity. There will be no grace period and the first interest payment is expected at the end of the year. (a) If the cost of funds is 5 per cent for the bank, what is the present value of the loan prior to the rescheduling? Interest payments in years 1–5: 0.10 × $20 = $2m PV = PVAn=5,k=5($2) + PVn=5,k=5($20) = $24.3295 million (b) What is the present value of the rescheduled loan to the bank? Interest payments in years 1–10: 0.06 × $20 = $1.2m PV = PVAn=10,k=5($1.2) + PVn=10,k=5($20) = $21.5443 million (c) What is the concessionality of the rescheduled loan if the cost of funds remains at 5 per cent and an upfront fee of 5 per cent is charged? Upfront fee = 0.05 × $20m = $1 million PV (total) = $21.5443 million + $1 million = $22.5443 million Concessionality = PVo – PVR = PV of old loan – PV of rescheduled loan = $24.3259 – $22.5443 = $1.7852 million (d) What upfront fee should the bank charge to make the concessionality equal zero? The bank has to increase its upfront fees by $1.7852 for a total of $2.7852 or 13.93%. 25 A bank was expecting to receive $100 000 from its customer based in Singapore. Since the customer has problems repaying the loan immediately, the bank extends the loan for another year at the same interest rate of 10 per cent. However, in the rescheduling agreement, the bank reserves the right to exercise an option for receiving the payment in Singapore dollars, S$181 500, converted at the current exchange rate of S$1.65/$1. (a) If the cost of funds to the bank is also assumed to be 10 per cent, what is the value of this option built into the agreement if only two possible rates are expected at the end of the year, S$1.75/$1 or S$1.55/$1, with equal probability? Without the option, the amount expected at the end of the year = $110 000. If the S$ depreciates to S$1.75/$1, the amount received by the bank is the maximum of $110 000, or 181 500/1.75 = $103 714.29. If the S$ appreciates to S$1.55/$1, the amount received by the bank is the maximum of $110 000, or 181 500/1.55 = $117 096.77. With the option, the expected amount received is 0.50($110 000) + 0.50($117 096.77) = $113 548.39. The present value of the option is $113 548.39 – $110 000 = $3548.39/1.1 = $3225.81 (b) How would your answer differ if the probability of the rate being S$1.75/$1 is 70 per cent and that of S$1.55/$1 is 30 per cent? With the option, the expected amount received is 0.70($110 000) + 0.30($117 096.77) = $112 129.03. The present value of the option = $112 129.03 – $110 000 = $2 129.03/1.1 = $1935.48. (c) Does the currency option have more or less value as the volatility of the exchange rate increases? The option will have more value as the volatility of the exchange rate increases. Web questions 26 Go to the Heritage Foundation website (www.heritage.org) and find the most recent Economic Freedom Index for Australia, by clicking on ‘explore the data’. This will download a file that contains the relevant data. What factors led to this rating? The answer will depend on the date of the assignment. At the Heritage Foundation website, click on ‘for researchers’. Then click on ‘index of economic freedom’ under ‘research tools and resources’. Sort by ‘rank’. Click on ‘view’. This will download a file that contains the relevant data. However, I can provide general information about the factors that typically contribute to a country's rating on the Economic Freedom Index, based on previous editions of the index: 1. Rule of Law: This factor assesses the extent to which property rights are protected, the independence of the judiciary, the effectiveness of the legal system, and the prevalence of corruption. 2. Government Size: This factor evaluates the level of government spending, taxation, and fiscal health. Countries with lower levels of government intervention and taxation tend to score higher on this component. 3. Regulatory Efficiency: This factor examines the ease of doing business, the burden of government regulations, business freedom, labor market flexibility, and the openness of product markets. 4. Open Markets: This factor assesses trade freedom, investment freedom, and financial freedom. Countries with fewer barriers to international trade and investment tend to score higher on this component. 5. Sound Money: This factor evaluates price stability, monetary policy effectiveness, and currency stability. Countries with stable and predictable monetary policies tend to score higher on this component. 6. Property Rights: This factor assesses the protection of property rights, including intellectual property rights, and the legal framework for contract enforcement. Each of these factors contributes to a country's overall score on the Economic Freedom Index. Higher scores indicate greater economic freedom, which is associated with higher levels of prosperity, economic growth, and overall well-being. To access the most recent Economic Freedom Index for Australia and understand the specific factors that led to its rating, you can visit the Heritage Foundation's website at www.heritage.org, navigate to the Economic Freedom Index section, and explore the data or download the relevant file containing the data for Australia. 27 Go to the World Bank website (www.worldbank.org) and find the number of bank loans outstanding in Brazil and China. To do this, click on ‘data and research’. Under ‘data programs’, click on ‘joint external debt hub’. Click ‘go’ and then click ‘creditor/market’. Under ‘debtor country’ click on Brazil, and then click ‘go’. Repeat the process for China. In each case the file downloaded will contain the relevant data. However, I can guide you through the general process of accessing this information on the World Bank's website: 1. Visit the World Bank's Website: Go to www.worldbank.org. 2. Navigate to Data and Research: Look for a section or tab on the website related to data and research. This section typically provides access to various databases, reports, and research publications. 3. Access the Joint External Debt Hub: Within the data programs or databases section, search for the Joint External Debt Hub. This hub provides information on external debt data for countries around the world. 4. Select Creditor/Market: Once you've accessed the Joint External Debt Hub, click on the option for Creditor/Market. This will allow you to access data related to creditors and markets for external debt. 5. Choose Debtor Country: Under the section for debtor country, select Brazil and then click "Go". This will filter the data to show information specifically related to Brazil's external debt. 6. Download Data: Look for the option to download the relevant data file containing information on bank loans outstanding in Brazil. The file may be available in various formats such as Excel or CSV. 7. Repeat for China: Repeat the same process outlined above for China. Select China as the debtor country, click "Go", and download the data file containing information on bank loans outstanding in China. By following these steps, you should be able to access the number of bank loans outstanding in Brazil and China from the World Bank's Joint External Debt Hub. If you encounter any difficulties or have specific questions, you can also explore the World Bank's website further or reach out to their customer support for assistance. Solution Manual for Financial Institutions Management Anthony Saunders, Marcia Cornett, Patricia McGraw 9780070979796, 9780071051590