Country Risk

AAA

DEFINITION of 'Country Risk'

A collection of risks associated with investing in a foreign country. These risks include political risk, exchange rate risk, economic risk, sovereign risk and transfer risk, which is the risk of capital being locked up or frozen by government action. Country risk varies from one country to the next. Some countries have high enough risk to discourage much foreign investment.

INVESTOPEDIA EXPLAINS 'Country Risk'

Country risk can reduce the expected return on an investment and must be taken into consideration whenever investing abroad. Some country risk does not have an effective hedge. Other risk, such as exchange rate risk, can be protected against with a marginal loss of profit potential.

The United States is generally considered the benchmark for low country risk and most nations can have their risk measured as compared to the U.S. Country risk is higher with longer term investments and direct investments, which are investments not made through a regulated market or exchange.

RELATED TERMS
  1. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  2. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  3. Sovereign Credit Rating

    The credit rating of a country or sovereign entity. Sovereign ...
  4. Overseas Private Investment Corporation ...

    A U.S. government agency that assists businesses looking to invest ...
  5. Counterparty Risk

    The risk to each party of a contract that the counterparty will ...
  6. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
Related Articles
  1. Investing Beyond Your Borders
    Insurance

    Investing Beyond Your Borders

  2. Evaluating Country Risk For International ...
    Options & Futures

    Evaluating Country Risk For International ...

  3. Finding Fortune In Foreign-Stock ETFs
    Mutual Funds & ETFs

    Finding Fortune In Foreign-Stock ETFs

  4. Why Country Funds Are So Risky
    Investing Basics

    Why Country Funds Are So Risky

comments powered by Disqus
Hot Definitions
  1. Odious Debt

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

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

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  4. 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 ...
  5. Pareto Principle

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

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