Country risk comprises the various risks of investing in a foreign country that can lead to either investment impairments or reductions in returns on investment (ROI). Investment impairments may arise from confiscatory actions by a sovereign (e.g., nationalization of the business or expropriation of assets). ROI reductions may arise from discriminatory actions by a sovereign directed to the company, a targeted industry (say, energy or banking) or companies from certain countries (e.g., additional taxation, price or production controls, exchange controls, currency manipulation, expansion controls, performance requirements and other regulations). Both may arise from destructive or disruptive acts by others (e.g., violence, terrorism, war, strikes, infrastructure deficiencies, kidnappings or physical phenomena). The primary objective of managing country risk is to protect company investments in foreign markets and sustain acceptable investment returns.
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