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Country risk

 
Investment Dictionary: Country Risk
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The risk that a country will not be able to honor its financial commitments.

Investopedia Says:
When a country defaults it can harm the performance of all other financial instruments in that country, as well as other countries.

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Banking Dictionary: Country Risk
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Risk that economic or political changes in a foreign country, for example, lack of currency reserves (Foreign Exchange), will cause delays in loan payments to creditor banks, Exchange Controls by monetary authorities, or even repudiation of debt. Country risk is broader in scope than Sovereign Risk as it takes into account the probability of debt repayment by private borrowers as well as central governments. Banks set aside funds in a reserve account, called the Allocated Transfer Risk Reserve as a cushion against possible bad debt losses from foreign loans. The Asian financial crisis of 1997-which began with a currency devaluation in Thailand led to serious balance of payment problems in Asia, Russia, and Latin America-underscored this broad definition of country risk. Following the Asian crisis, international lenders came to view country risk as any event causing non-payment by private borrowers due to macroeconomic developments beyond their control. See also Country Exposure Lending Survey; Country Limit.

Wikipedia: Country risk
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Country risk refers to the risk of investing in a country, dependent on changes in the business environment that may adversely affect operating profits or the value of assets in a specific country. For example, financial factors such as currency controls, devaluation or regulatory changes, or stability factors such as mass riots, civil war and other potential events contribute to companies' operational risks. This term is also sometimes referred to as political risk, however country risk is a more general term, which generally only refers to risks affecting all companies operating within a particular country.

Political risk analysis providers and credit rating agencies use different methodologies to assess and rate countries' comparative risk exposure. Credit rating agencies tend to use quantitative econometric models and focus on financial analysis, whereas political risk providers tend to use qualitative methods, focusing on political analysis. However, there is no consensus on methodology in assessing credit and political risks.

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Country risk ratings

Country risk rankings Least risky countries, Score out of 100 Source: Euromoney Country risk March 2008[1]
Rank Previous Country Overall score
1 1 Luxembourg 99.88
2 2 Norway 97.47
3 3 Switzerland 96.21
4 4 Denmark 93.39
5 5 Sweden 92.96
6 6 Ireland 92.36
7 10 Austria 92.25
8 9 Finland 91.95
9 8 Netherlands 91.95
10 7 United States 91.27


The least-risky countries for investment. Ratings are further broken down into components including political risk, economic risk. Euromoney's bi-annual country risk index "Country risk survey" monitors the political and economic stability of 185 sovereign countries. Results focus foremost on economics, specifically sovereign default risk and/or payment default risk for exporters (a.k.a. "trade credit" risk).

Partial list of country risk premium

Partial list of credit risk rating agencies

Partial list of political risk analysis organizations

Downloadable Country Analysis and Reports

References

  1. ^ [1]: Bi-annual survey which monitors the political and economic stability of 185 sovereign countries, according to ratings agencies and market experts. The information is compiled from Risk analysts; poll of economic projections; on GNI; World Bank’s Global Development Finance data; Moody’s Investors Service, Standard & Poor’s and Fitch IBCA; OECD consensus groups (source: ECGD); the US Exim Bank and Atradius UK; heads of debt syndicate and loan syndications; Atradius, London Forfaiting, Mezra Forfaiting and WestLB.
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Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved.  Read more
Banking Dictionary. Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.  Read more
Wikipedia. This article is licensed under the Creative Commons Attribution/Share-Alike License. It uses material from the Wikipedia article "Country risk".  Read more