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. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
  4. Alpha

    1. A measure of performance on a risk-adjusted basis. Alpha takes ...
  5. Country Risk

    A collection of risks associated with investing in a foreign ...
  6. Beta

    A measure of the volatility, or systematic risk, of a security ...
Related Articles
  1. Evaluating Country Risk For International ...
    Options & Futures

    Evaluating Country Risk For International ...

  2. Getting Into International Investing ...
    Mutual Funds & ETFs

    Getting Into International Investing ...

  3. Is Biased Investing Holding You Back?
    Mutual Funds & ETFs

    Is Biased Investing Holding You Back?

  4. Does International Investing Really ...
    Bonds & Fixed Income

    Does International Investing Really ...

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center