Why is country risk analysis so important to a Multinational when making investment or divestment decisions?

Country Risk refers to the economic , political and business risks that are unique to a specific country , and that might result in unexpected investment losses . It refers to the uncertainity associated with investing in a particular country , and more specifically the degree to which that uncertainity could lead to losses for investors .

Economic Risk - This risk refers to a country's ability to pay back its debts . A country with stable finances and a stronger economy should provide more reliable investments than a country with weaker finances or an unsound economy .

Political Risk - This risk refers to the political decisions made within a country that might result in an unanticipated loss to investors . While economic risk is often referred to as a country's ability to pay back its debt , political risk is sometimes referred to as the willingness of a country to pay debts or maintain a hospitable climate for outside investment .

Sovereign Risk - This risk that a foreign central bank will alter its foreign exchange regulations , significantly reducing or nullifying .