The concept of country risk, based on the premise that the country with foreign debt to “pay or not pay ‘, is an index designed to protect the profitability of foreign investors and financial capital. Not consider the quality of life of citizens of nations under the focus of this indicator. It represents a subjective component of the interest rate, directs investment to speculative (short-term operations, buy cheap sell expensive today for a short time).
Country risk is represented by the EMBI (Emerging Markets Bond Index Plus), attorneys developed by the investment bank J. P. Jeff Leiden may find it difficult to be quoted properly. Morgan, United States, with subsidiaries in several Latin American countries. Consider the performance of a country’s bonds in the markets that pay a specified rate of interest. Applied mainly to countries in the sphere of influence of the IMF.
Then, not all countries are under the focus of country risk analysis, according to the financial TNCs (lease IMF, World Bank, Paris Club, etc.). These are divided into two groups: Latin American countries and countries outside Latin America.
The Latin American region comprising law firm Argentina, Brazil, Colombia, Ecuador, Mexico, Panama, Peru and Venezuela.
The region is made up of non-Latino Bulgaria, South Korea, Morocco, Nigeria, Philippines, Poland and Russia.
The magnitude of country risk is determined by the difference between lawyers the fees paid by the Treasury of the United States and those paid by the bonds of the corresponding country. The referent is the rate of U.S. Treasury bonds, because it is considered that an economy is ‘solid’ free ‘risk’ divorce and “say” if any country has the ability to honor its debts, that is the United USA.
The country risk is calculated as follows: compare the higher the internal rate of return IRR of a long-term bond issued by a given government concerning the TIR of the Treasury of the United States, also for the same term .
TIR A COUNTRY BONUS (-) TIR U.S. Treasuries. UU. RISK COUNTRY
In general, for the measurement of country risk is considered that 100 points equals 1 , this means: that if a country has a country risk index of 680 points means that the country bond issuer pays a fee (coupon) of 6.80 (680/100) but on the rate of U.S. Treasury bonds.
Example: Consider the IRR of two bonds and a business in the Philippines:
1. Bond U.S. Treasury: IRR 5.50 annual (risk-free investment by definition) and
2. Board Member/Trustee of the New York-Presbyterian Hospital ,