What is Country Risk?
John Spacey, updated on March 20, 2021
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 RiskThe 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 RiskThe 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 RiskInvesting or operating a business in a foreign country may expose you to exchange rate risk.
4. Economic RiskExposure to the economic conditions of the country such as recessions, inflation and credit conditions.
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