Country Risk, in banking, is the likelihood that unexpected events within a host country that will influence a client or government’s ability to repay a loan. It is also known as Macro Risk.
Basically, the risks regarding investing in a particular country would fall under the label “Country Risk”. It is hard to keep track of changes in a foreign market let alone the power politics and other social changes over time.
Types of Country Risks
These risks are often divided into sovereign risk (political, or cultural and institutional) and foreign exchange risk (currency or transfer). But there are seven types of risks in total that can be termed as country risk and they are listed below -
- Political Risk
- Sovereign Risk
- Neighbourhood Risk or Location Risk
- Subjective Risk
- Economic Risk
- Exchange Risk
- Transfer Risk
All these sorts of risks need to be taken into consideration well before planning to invest in other countries. Risk assessment is one of the most important parts of business planning anyway.
Use of the Term in Sentences
- There is always some level of country risk involved with investing away from one’s home country and often they are unforeseeable in nature.
- Knowing about various types of country risks can help mitigate the possibility of them being a problem for one’s business.