Country Risk Premium - CRP

AAA

DEFINITION of 'Country Risk Premium - CRP'

The additional risk associated with investing in an international company rather than the domestic market. Macroeconomic factors such as political instability, volatile exchange rates and economic turmoil causes investors to be wary of overseas investment opportunities and thus require a premium for investing. The country risk premium (CRP) is higher for developing markets than for developed nations.

INVESTOPEDIA EXPLAINS 'Country Risk Premium - CRP'

The CAPM can be adjusted to reflect the additional risks of international investing by adjusting the model for the CRP.


Re = Rf + β(Rm – Rf + CRP)


As expected by general financial theory, investors seeking to invest into a region such as Zimbabwe must be compensated with greater expected returns.

RELATED TERMS
  1. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  2. Political Arbitrage Activity

    An arbitrage activity that involves trading securities based ...
  3. Macro Risk

    A type of political risk in which political actions in a host ...
  4. Alpha

    1. A measure of performance on a risk-adjusted basis. Alpha takes ...
  5. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
  6. Consumption Capital Asset Pricing ...

    A financial model that extends the concepts of the capital asset ...
RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
  5. Why should an investor include an allocation to the telecommunications sector in ...

    An investor should include an allocation to the telecommunications sector in his portfolio, because telecom offers an investor ... Read Full Answer >>
  6. What are some mutual funds that do not have 12b-1 fees?

    Some of the most popular and best-performing mutual funds that do not include any 12b-1 fees in the expenses charged to fund ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Evaluating Country Risk For International Investing

    Investing overseas begins with determining the risk of the country's investment climate.
  2. Mutual Funds & ETFs

    Getting Into International Investing

    Diversifying can mean not only investing in various asset classes but also venturing beyond domestic exchanges.
  3. Mutual Funds & ETFs

    Is Biased Investing Holding You Back?

    Risk aversion seems to come to us naturally, preventing us from stepping into unfamiliar territory. But feeling comfortable isn't always the best thing for your portfolio.
  4. Bonds & Fixed Income

    Does International Investing Really Offer Diversification?

    Historically, international investing has worked out well for investors, but this may no longer be the case.
  5. Mutual Funds & ETFs

    ETF Analysis: Vanguard International Stock

    Discover how the Vanguard Total International Stock ETF is managed, and learn which investors may find it suitable as part of a diversified portfolio.
  6. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in England

    Discover how beneficial ETFs are for investors looking for exposure to the English economy, and find information on three popular U.K. ETFs.
  7. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in France

    Discover how investors can use exchange traded funds (ETFs) to easily obtain exposure to equities of major companies domiciled in France.
  8. Investing

    Go Green with a Investment in Green Bonds

    If you want to invest in a socially responsible way, green bonds may be for you. And as the market grows retail investment opportunities will grow too.
  9. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Italy

    Find out about some of the exchange-traded funds that investors can utilize when they want to obtain exposure to the Italian equities market.
  10. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Scotland

    Learn about three of the best exchange-traded funds with exposure to Scotland, the British pound sterling and the rest of the United Kingdom.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!