sovereign debt

[jcjc0602]

Wallace, an emerging market bond trader, is holding a 5-year USD Malaysian corporatebond in his book. He is concerned about the risk of his position. Which of the followingstatements concerning the risk of his position is incorrect?​

A the corporate bond could be upgraded so that it would have a higher rating than Malaysian sovereign debt​

B buying protection with a CDS would hedge the corporate bond position against some risks but it would do a poor job of hedging the position if there is a drop in liquidity for emerging market sovereign bonds​

C A short position in Ringgits sovereign bond from Malaysia would always help hedge the corporate bond against currency risk if the firm is an exporter​

D A short position in 5-year US treasury and buying protection on the corporate bond using a CDS would be a better hedge than just buying protection on corporate bond. ​

Could anybody explain why C is correct given answer is obviously A.​

 

[DallasFRM]

http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245316664774&ffFix=yes

It is typically the case that the sovereign rating is the "Cap" for the corporate bond. If the sovereign defaults, than there is likely to be systemic risk to the corporate, hence the idea of "cap". At least that was the old school thinking that I was taught. Having said that, S&P is saying in the attached link that nonsovereigns with debt domiciled in the sovereign can have a higher rating.