(i) Sovereign debt (issued bonds) are typically considered as proxies for risk free. Discuss the reasons why sovereign debt may not be risk free. Why might credit ratings agencies give different credit ratings to sovereign debt issued by the same country, depending on coupons denominated in domestic or foreign currency.

(ii) Four Cs of credit analysis is used by analysts to evaluate creditworthiness. For each of the following scenarios, which of the Four Cs should be used for evaluation? Please also explain your answers.

Scenarios	Which of the Four Cs
1. Company Z cannot issue dividends unless all bondholders have been paid the interests or coupons. In addition, the dividend payments cannot be greater than 30% of companys annual EBIT.
2. Company T decides to raise funds through debt issue. However, it operates in Video Rental industry, which is said to be a declining industry.

(iii) Ratings Agencies play an important role in credit markets. Please explain the factors that might undermine the usefulness of credit ratings.