Sovereign Risk

Banks are often unofficially or officially labeled by a number of names that give an indication of what kind of customers they serve and what kind of loans they predominantly make. Knowing these...

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Saving for Retirement: Better Late Than Never

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I am a 47-year-old self-employed day-care provider and have no retirement savings. While my husband has a 401(k) plan through his employer, it has lost a great deal of value due to recent...

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Business Glossary

Definitions for: sovereign risk

Dictionary of Finance and Investment Terms

sovereign risk

risk that a foreign government will default on its loan or fail to honor other business commitments because of a change in national policy. A country asserting its prerogatives as an independent nation might prevent the repatriation of a company or country's funds through limits on the flow of capital, tax impediments, or the nationalization of property. Sovereign risk became a factor in the growth of international debt that followed the oil price increases of the 1970s. Several developing countries that borrowed heavily from Western banks to finance trade deficits had difficulty later keeping to repayment schedules. Banks had to reschedule loans to such countries as Mexico and Argentina to keep them from defaulting. These loans ran the further risk of renunciation by political leaders, which also would have affected loans to private companies that had been guaranteed by previous governments. Beginning in the 1970s, banks and other multinational corporations developed sophisticated analytical tools to measure sovereign risk before committing to lend, invest, or begin operations in a given foreign country. Throughout periods of worldwide economic volatility, the United States has been able to attract foreign investment because of its pe ceived lack of sovereign risk. Also called country risk or political risk.

Sovereign Risk

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