Content area
Abstrakt
This study was undertaken with the purpose of advancing the field of "country risk" assessment and assisting United States commercial banks in their selection of the appropriate approach to use in such assessments. To accomplish this objective the writer compared two approaches--the "structured qualitative" and the "market-oriented."
The writer tested the basic hypothesis that if countries are ranked by each of the approaches, the rankings resulting from one approach will not be strongly positively correlated with those resulting from the other approach. One-year assessment horizons were used. The writer chose two models--one to represent each of the approaches studied. A set of twenty countries that were the major borrowers on the Euromarket between 1975 and 1979 were ranked by each method.
There was no indication of strong positive correlation in any of the cases studied. This led to the conclusion that given the lack of solid theoretical foundation for the qualitative method combined with little empirical evidence for its validity, the method should be rejected. The market-oriented approach does have roots in financial theory, and it should be the method that banks employ.
The writer points out that further research in the field is needed in order to accelerate the rate of progress to meet the growing needs for rapidly improving country risk assessments.
