Country risk broadly refers to the likelihood that a sovereign state may be unable or unwilling to fulfill its obligations toward one or more lenders.6 It involves an assessment of economic performance in the context of a country’s demand for external financing and judgments about the prospect for changes in financial returns.
• Sovereign risk is the risk that a foreign central bank will alter its foreign-exchange regula completely nullifying the value of foreign-exchange contracts.7 It also refers to the risk of government default on a loan made to it or guaranteed by it.
• Political risk concerns those political and social developments that can have an impact upon the value or repatriation of foreign investment or on the repayment of cross-border lending, which may originate within a host country, the home country, or the international arena.8 This includes arbitrary or discriminatory actions taken by governments, political groups, or individuals that have an adverse impact on trade or investment transactions.tions, thereby significantly reducing or