Estimating Country Risk: Factors to Consider

Factors to Consider When Estimating Country Risk

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Question

Which of the following should be taken into account when estimating country risk?

I.Political risk -

II.Expropriation risk -

III.Currency risk -

IV.Economic environment -

V.Inflation trends -

VI.Trade policy -

VII.Consumer tastes -

Answers

A. I, III, IV, V, VII

B. I, II, III,

C. I, II, III, IV, V, VI, VII

D. II, IV, V

E. I, III, III, IV, V, VII

F. None of these choices are correct

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Explanations

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A. B. C. D. E. F.

In assessing country risk, one must consider various sources of risk and instability prevalent within the country being examined. The two basic components of country risk are political risk and financial risk. However, there are many considerations in assessing country risk that exist beyond the boundaries of simple classification. For instance, attitudes of consumers must be taken into effect, as well as such things as trends in consumer spending, unemployment rates, threats of ideological instability, etc. So said, the determination of a finite "country risk premium" is often a complex and daunting task. When assessing a country risk premium, the five sources of risk must be considered (business risk, financial risk, liquidity risk, exchange rate risk, and country risk).

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