08-06-2003, 05:08 AM
No CBpian, its not like that, both are little bit different,
Country risk is caused by politicl (unwilingness to repay) or economic (inability to repay) events in a particular country.
country risk relates to the likilihood that changes in the business enviroment will occur that reduce the profitability of doing business in a country. These changes can adversly affect operating profits as well as the value of assets.
Sometimes Sovereign Risk gets confused with Country Risk. Sovereign risk is the risk of the government or government related entity making payment. Country risk embodies both govern (sovereign) and commercial (corporation/banks etc) risk.
Often countries have external ratings assigned by Rating Agencies. However, those ratings can vary depending on the service provided by the rating agency. Some countries simply ask for a foreign currency bond rating, which only covers the bond issues.
It is important to recognise what country risk is trying to define. It can capture, say legal, tax, accounting etc, which are typically referred to as Operational risk. But the key is the payment risk, ie the flow of funds availability from one country to another. If a business is exporting goods to say Indonesia, there are two payment risks
The counterparty â ie importer and bank; and
The country risk â ability of that counterparty to obtain foreign currency to make payment.
Regards
S M R
Edited by - smraza on Aug 06 2003 125551 AM
Country risk is caused by politicl (unwilingness to repay) or economic (inability to repay) events in a particular country.
country risk relates to the likilihood that changes in the business enviroment will occur that reduce the profitability of doing business in a country. These changes can adversly affect operating profits as well as the value of assets.
Sometimes Sovereign Risk gets confused with Country Risk. Sovereign risk is the risk of the government or government related entity making payment. Country risk embodies both govern (sovereign) and commercial (corporation/banks etc) risk.
Often countries have external ratings assigned by Rating Agencies. However, those ratings can vary depending on the service provided by the rating agency. Some countries simply ask for a foreign currency bond rating, which only covers the bond issues.
It is important to recognise what country risk is trying to define. It can capture, say legal, tax, accounting etc, which are typically referred to as Operational risk. But the key is the payment risk, ie the flow of funds availability from one country to another. If a business is exporting goods to say Indonesia, there are two payment risks
The counterparty â ie importer and bank; and
The country risk â ability of that counterparty to obtain foreign currency to make payment.
Regards
S M R
Edited by - smraza on Aug 06 2003 125551 AM
