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CAPITAL INVESTMENT APPRAISAL
Country risk
• According to author, Luis Pereiro (2002), country risk
represents the combined risk from the following country-
specific risk components (with examples in brackets):
• Currency risk and the risk resulting from inflation, including
devaluation and volatility in the local currency (think of the volatility
of South African rand a few years ago and of the recent
devaluation in several emerging market currencies against
benchmark currencies).
• The credit risk of the government, including the possibility of
defaulting on international debt funding, such as government
bonds (think of the euro-crisis, and recent changes in the
perceived credit risk of Greece and Portugal).
• Social or political problems (think of recent events in Syria and
Egypt).
• Possibility of government expropriation and nationalisation of
private assets (think of recent events in Zimbabwe and Bolivia).
• Potential barriers to free capital flow in and out of the country
(think of South Africa).
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