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What is Country Risk?

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Country risk is the potential for losses due to investments or business activities in a particular country. Each country has a different risk profile with some nations having a highly stable political process and mature economy and others that have unstable politics and severe economic fluctuations. The following are a few types of country risk.

1. Political Risk

The risk that political events or conditions will result in losses. In extreme cases, political events can completely disrupt business activity in a country for an extended period of time.

2. Taxation Risk

The risk of a change in tax law or interpretations. Unexpected changes in tax law can drive down asset prices. New tax regulations can also make it difficult or prohibitively expensive to operate a business in a particular country.

3. Exchange Rate Risk

Investing or operating a business in a foreign country may expose you to exchange rate risk.

4. Economic Risk

Exposure to the economic conditions of the country such as recessions, inflation and credit conditions.

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