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. Country Risk

    A collection of risks associated with investing in a foreign ...
  5. Political Risk

    The risk that an investment's returns could suffer as a result ...
  6. Beta

    A measure of the volatility, or systematic risk, of a security ...
RELATED FAQS
  1. How much of a diversified portfolio should be invested in the electronics sector?

    The electronics sector tracks closely with the broader market, making it a cyclical sector with average volatility. Electronics ... Read Full Answer >>
  2. What are some common questions an interviewer may ask during an interview for a position ...

    When interviewing for a job at an investment bank, a candidate is likely to answer questions about his career and education ... Read Full Answer >>
  3. What is the difference between a bill of exchange and a promissory note?

    A bill of exchange is a written agreement between two parties – the buyer and the seller – used primarily in international ... Read Full Answer >>
  4. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  5. What is the average annual return for the S&P 500?

    According to historical records, the average annual return for the S&P 500 since its inception in 1928 through 2014 is ... Read Full Answer >>
  6. How does market risk differ from specific risk?

    Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... 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. Investing News

    Cost-Free Connection Of Target Groups To Marketers

    ZipDial spotted a niche marketing opportunity in the area of “missed calls” and developed a business around it. Here is how ZipDial works and its benefits.
  6. Investing News

    The Funds Keep Flowing Into Indian Tech Startups

    Investors are increasingly turning their attention to Indian tech startup companies. Billions of dollars are flowing into the startup sector in India.
  7. Economics

    One Silver Lining Of Slower Global Growth

    Stocks struggled last week amid more evidence out of the world’s largest economies that global economic growth isn’t accelerating as expected.
  8. Economics

    What is a Capital Account?

    Capital account is an economic term that refers to the net change in investment and asset ownership for a nation.
  9. Fundamental Analysis

    Explaining Expected Return

    The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome.
  10. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.

You May Also Like

Hot Definitions
  1. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  2. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  3. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  4. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  5. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
Trading Center