Search Investopedia

Country Risk

Filed Under » ,
Dictionary Says

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 Says

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 Definitions

  •

    Counterparty Risk

    The risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk as a risk to both parties and should be considered when ...
    Read More »

  • Legislative Risk

    The risk that legislation by the government could significantly alter the business prospects of one or more companies, adversely affecting investment holding in that company. This may ...
    Read More »

  • Liquidity Risk

    The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.
    Read More »

    • Political Risk

      The risk that an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in ...
      Read More »

    • Price Risk

      The risk of a decline in the value of a security or a portfolio. Price risk is the biggest risk faced by all investors. Although price risk specific to a stock can be minimized through ...
      Read More »

    • Sovereign Credit Rating

      The credit rating of a country or sovereign entity. Sovereign credit ratings give investors insight into the level of risk associated with investing in a particular country and also ...
      Read More »

    • Currency Risk

      A form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face ...
      Read More »

    • Micro Risk

      A type of political risk that refers to political actions in a host country that can adversely affect selected foreign operations. Micro risk can come about from events that may or may ...
      Read More »

    • Overseas Private Investment Corporation - OPIC

      A U.S. government agency that assists businesses looking to invest abroad. Operated out of Washington, D.C., the Overseas Private Investment Corporation (OPIC) helps companies investing ...
      Read More »

    • Risk-Return Tradeoff

      The principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty ...
      Read More »

    • Systematic Risk

      The risk inherent to the entire market or entire market segment. Also known as "un-diversifiable risk" or "market risk."
      Read More »

    • Unsystematic Risk

      Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through appropriate diversification. Also known as "specific risk", ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions